When it was announced in July, the deal would have allowed AbbVie to reincorporate in the U.K. and lower its tax rate considerably. However, last month the U.S. Treasury Department announced new rules that would make such transactions, known as inversions, less lucrative. AbbVie says its board is now recommending that shareholders vote against the purchase.
Shire says it is considering the situation. It noted earlier that AbbVie must pay a $1.6 billion breakup fee if it cancels the deal.
From the start of its pursuit of Shire in May, AbbVie executives insisted that the tax advantage of the deal was only one reason for pursuing it. Now, though, it’s the only reason for dropping it.
“Although the strategic rationale of combining our two companies remains strong, the agreed-upon valuation is no longer supported as a result of the changes to the tax rules,” AbbVie CEO Richard A. Gonzalez said in announcing the change of course.
In its announcement, AbbVie took a swipe at what it calls the U.S. government’s “unilateral” change in regulations. It complained about “the unexpected nature of the exercise of administrative authority to impact long-standing tax principles” and how the rules would treat it “differently than either other inverted companies or foreign domiciled entities.”