AbbVie closes in on Shire and UK tax base

by Calum Fuller

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15 Jul 2014

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SHIRE HAS FINALLY BOWED to the overtures of pharmaceutical AbbVie at the fifth time of asking as Shire's board said it will support a £31bn deal that brings with it a UK tax base for the US suitor.

It's the latest in a growing trend of mergers put forward by US businesses seeking to cut their tax bills and comes less than two months after the collapse of Pfizer's attempted takeover of AstraZeneca, also motivated in part by tax.

AbbVie is keen to acquire Shire both to reduce its US tax bill by moving its tax base to Britain - a tactic known as inversion - and to diversify its drug portfolio.

The UK headline corporation tax rate currently stands at 21%, and is set to drop to 20% from next near, well below the US's 35% headline rate, where AbbVie would also face local rates.

AbbVie has proposed creating a new US-listed holding company with a tax domicile in Britain, where the government has also put in place generous research and development-based tax breaks.

The US group gets nearly 60% of its revenue from rheumatoid arthritis drug Humira, the world's top-selling medicine, which loses US patent protection in late 2016.

Reuters reports Shire, a manufacturer of drugs for rare diseases, told AbbVie to sweeten its offer to near £53 per share in order for it to recommend the deal.

Shire said the new bid comprised £24.44 in cash and 0.8960 new AbbVie shares for each Shire share and would result in Shire investors owning around 25% of the combined entity.

"The proposed offer seems a fair price that represents good value for both companies' shareholders,"  Mick Cooper, an analyst at Edison Investment Research. Shares in Shire, founded in 1986, hit a record high of £50.45 in mid-morning trading.

According to Reuters, analysts at Barclays estimated the move would provide an estimated $1.3bn tax savings by 2020, reflecting lower UK corporate tax rates.

"We expect the majority of the tax savings to be realised within the first two years," Barclays analysts said.

Shire said in a statement on its website: "The board of Shire has indicated to AbbVie that it would be willing to recommend an offer at the level of the revised proposal to Shire shareholders. Accordingly, the board is in detailed discussions with AbbVie in relation to these terms."

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