New anti-inversion tax rules lead to termination of AbbVie/Shire deal

October 16, 2014

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(Editor’s Note: This post is an excerpt from an article appearing in Practitioner Insights on WestlawNext)

The AbbVie Inc. board did not waste much time in considering whether recently passed anti-inversion tax rules would be a detriment to its acquisition of Shire PLC. Two days after announcing that it would reconsider whether to go through with the deal, the board announced on Oct. 16 that it would terminate the acquisition in light of the financial burdens imposed by the Internal Revenue Service’s and Treasury Department’s recently enacted federal tax rules.

Chicago-based AbbVie agreed to acquire Dublin-based Shire in July, pursuant to which the parties would become indirect, wholly owned subsidiaries of a new company that would be reincorporated in Jersey.

AbbVie’s board disclosed to Shire’s board on Oct. 14 that it was considering changing its recommendation in favor of the deal in light of regulations recently passed by the IRS and the Treasury Department that would remove several tax benefits available to inverted corporations. These regulations were effective immediately and were applicable to any deal resulting in a corporate inversion that closes on or after Sept. 22, thus affecting the AbbVie/Shire deal.

High levels of uncertainty

AbbVie’s board said that it would evaluate the new tax regulations’ “impact to the fundamental financial benefits of the transaction” and would hold a board meeting on Oct. 20 to make its decision. The board did not wait until then, however. After Shire waived a three-day notice period, AbbVie’s board recommended that its shareholders vote against the Shire transaction.

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