Chafing under the political heat generated by Washington against tax-slicing “inversion” mergers, AbbVie said its board of directors will reconsider its recommendation that company shareholders support the company’s planned acquisition of Shire for roughly £32 billion (about $51.1 billion).

AbbVie said its board will meet October 20 to discuss an about-face. It comes three weeks after the U.S. Department of the Treasury said it would issue new rules designed to limit the economic benefits of so-called “inversion” transactions, in which the combined company redomiciles from the U.S. to a country with lower corporate taxes.

Earlier this month the threat of the new anti-inversion rules had the desired effect of torpedoing one biopharma deal: On October 3, Salix Pharmaceuticals and Cosmo Pharmaceuticals said they “mutually” ended a planned $2.7 billion inversion merger that would have transformed Salix into a subsidiary of an Irish-domiciled unit of Cosmo to have been renamed Salix.

“If AbbVie's Board of Directors was to withdraw or modify its recommendation, the withdrawal or modification alone would not cause a lapse of AbbVie's offer or terminate the Co-operation Agreement,” AbbVie stated.

Shire’s board responded this morning to AbbVie’s move by issuing a statement urging its prospective acquirer to go through with their merger deal, announced July 18. The board noted that AbbVie has neither provided it with a detailed analysis of its tax assumptions nor has it quantified the effect of federal regulatory changes announced last month, with the goal of dissuading inversion deals.

Shire’s board also cited one potential cost to AbbVie of walking away from their deal—the approximately $1.635 billion “break” fee it would have to pay Shire under such a circumstance.

“The Board of Shire believes that AbbVie should proceed with the recommended offer on the agreed terms in accordance with the Cooperation Agreement,” Shire said in a statement that added: “The Board will meet to consider the current situation and a further announcement will be made in due course.

As agreed in July by AbbVie and Shire, their deal would combine the Abbott Laboratories spinout and the biotech giant into a new company domiciled in the U.K.—entitling it to a 13% tax rate rather than its current 22%. Shire already maintains executive offices in Basingstroke, U.K., though the company is formally headquartered in Dublin, Ireland.

Shire CEO Flemming Ornskov, M.D., would lead corporate integration efforts on behalf of Shire, and oversee the creation of a Rare Disease business unit within the new entity or “New AbbVie” following completion of the deal. Dr. Ornskov will be based in Switzerland, and report directly to AbbVie’s chairman of the board and CEO Richard A. Gonzalez, who with other Top AbbVie executives would continue to work from the new entity’s operational headquarters in North Chicago, IL, where today’s AbbVie is headquartered. AbbVie spun out of Abbott in January 2013.

The new entity’s portfolio would combine Shire’s specialties in rare diseases and neuroscience, and AbbVie’s offerings across therapeutic areas that include gastrointestinal, GI, neuroscience, and rare oncology indications—anchored by Humira, the blockbuster best-selling prescription drug of the past few years.

Earlier today, AbbVie announced successful results from a Phase III trial assessing Humira in treating patients with moderate-to-severe hidradenitis suppurativa (HS). In results presented at the 23rd Annual European Academy of Dermatology and Venereology Meeting in Amsterdam, AbbVie said Humira met its primary endpoint in the PIONEER II trial of improved HS-related abscesses and inflammatory nodules—defined as at least 50% reduction from baseline in total abscess and inflammatory nodule (AN) count with no increase for either abscess or draining fistula count—at 12 weeks compared with placebo.

AbbVie-Shire was one in a series of biopharma inversion deals that angered the Obama administration enough to propose the new regulations. One change announced by the Treasury department would limit the ability to access cash held by overseas subsidiaries of a U.S. company without incurring U.S. tax by treating “hopscotch” loans from those subsidiaries to its prospective overseas parent as a taxable dividend to the U.S. parent corporation. Also to be targeted are deals designed to remove the subsidiaries’ foreign earnings from U.S. taxes through “de-control” of overseas subsidiaries from their U.S. parent.

Under the deal, Shire shareholders would be entitled to receive, for each Shire share, £24.44 ($39.07) cash and 0.896 shares in the new entity. That adds up to £52.48 ($83.86) per Shire share, based on AbbVie’s closing stock price July 17, the day before the merger announcement, of $53.52—a 53% premium over Shire’s share price of £34.67 ($55.41) on May 2, just before AbbVie made its first of five proposals for Shire.








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