The $54 billion inversion deal announced back in July by North Chicago, IL-based pharmaceutical giant Abbvie Inc. through a merger with Dublin, Ireland-based Shire PLC is now being rolled back.
Abbvie said in a statement last week that its board of directors is withdrawing the recommendation made on July 18, 2014 regarding the proposed Shire transaction and now recommends that stockholders vote against the transaction.
As per the statement, the board made this determination following a “detailed consideration of the impact of the U.S. Department of Treasury’s unilateral changes to the tax rules, as issued on September 22, 2014.”
That’s the first casualty racked up by the Treasury’s new law in this tax tiff over inversions. It’s a big deal and provides solid evidence that the inversion law changes will have some impact. It might even be better than the Treasury might have been hoping for, because this was a done deal that is now being rolled back.
It opens up the door for similar back-tracking of other large inversion deals because the tax benefit is now gone, and what’s the point of being headquartered on paper in a remote corner in Europe if your business and operational headquarters are actually based in the U.S?
Abbvie’s statement about tax law changes sums it up nicely – “the changes eliminated certain of the financial benefits of the transaction, most notably the ability to access current and future global cash flows in a tax efficient manner as originally contemplated in the transaction.”
It’s not unheard of, since many failed corporate marriages eventually end up with divorce.
As far as Abbvie and Illinois are concerned, they’ll just have to put the whole thing in the rear view and try to move on. Abbvie will not only lose the chance to reduce its tax rate from 22 to 13 percent, but may also now be on the hook for $1.635 billion which it may have to pay to Shire.
That’s the amount of the break fee according to their agreement, payable if the Abbvie shareholders reject the merger agreement or if the meeting doesn’t take place by Dec 14, 2014.
As far as Illinois is concerned, it’s like suddenly finding money which you forgotten about. They would have lost a huge amount in annual tax revenues if the inversion had been completed.
U.S. Senator for Illinois Dick Durbin said in a statement that he’s “by reports that AbbVie will reconsider its decision to move its tax address out of the United States.”
“When corporations choose to invert and don’t pay their fair share of taxes, they leave the rest of us to pick up the tab. That isn’t right, and I hope that more companies will see the light,” said Sen. Durbin.
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