The biggest deal of the year is set to be announced on Friday morning, as pharmaceutical giant AbbVie plans to announce a $53 billion acquisition of Shire, according to people briefed on the matter.
The deal will allow AbbVie, based outside Chicago, to reincorporate in Britain and reduce its tax bill, representing the largest ever merger to seek an inversion as a rush of U.S. companies are pursuing the financial advantages of moving overseas. AbbVie is pursuing the deal even as lawmakers move to crack down on the increasingly popular maneuver.
On Thursday, Sen. Orrin G. Hatch, R-Utah, who is the ranking member of the Senate Finance Committee, responded to calls from the Obama administration to crack down on inversions by saying he supported a short-term fix, though he suggested the administration’s initial proposal went too far.
An agreed deal between AbbVie and Shire comes after almost two months of sometimes testy negotiations. On Monday, Shire said its board had recommended a deal in which AbbVie would pay cash and stock worth 53.10 pounds (about $91) a share for the Ireland-based drugmaker.
The accepted offer is a full 53 percent above Shire’s closing price of 34.67 pounds a share on May 2, the day before AbbVie made its first offer, which was rejected, and came only after a series of increasingly rich bids. Its fifth offer was finally accepted this week. Shire shareholders will own about 25 percent of the combined company.
Representative for both companies were said to be completing legal details of the deal on Thursday, as both companies raced to meet a deadline for a firm offer. After news of AbbVie’s interest in Shire was leaked, British takeover rules required that AbbVie reach a deal by July 18 or walk away for at least six months. AbbVie is being advised by JPMorgan Chase, and Shire by Morgan Stanley, Citigroup and Goldman Sachs.
The deal will combine Shire’s stable of products, including Adderall, used in the treatment of attention deficit disorder, with AbbVie’s assets, which include Humira, which is used to treat arthritis. Humira comes off patent protection in 2016, providing a motivation for AbbVie to find new sources of revenues. The enlarged company is likely to have annual sales of about $25 billion.
“This transaction is a combination of two leading companies with leadership positions in specialty pharmaceuticals that would create a global market leader with unique characteristics and a compelling investment thesis,’’ AbbVie’s chief executive, Richard A. Gonzalez, said in his most recent statement arguing for the deal. “AbbVie will bring greater financial strength and R&D experience to this combination that will enable both companies to reach their full potential for their shareholders and patients in need across the globe.’’
Though analysts believe there is strategic merit to the combination, the draw of an inversion is also part of the equation. By moving to Britain and escaping U.S. tax rates, AbbVie will pay lower taxes on its international earnings, get access to overseas cash more cheaply, and be able to acquire other companies without making their earnings subject to U.S. taxes.
Making the case for a deal last month, AbbVie acknowledged the combined company would have “the potential for strengthened sustainability of top-tier growth’’ in earnings per share, and “attractive free cash flow and enhanced return of capital policy.’’ AbbVie has said it expects the combined company’s effective tax rate to be about 13 percent, sharply lower than the current 22 percent it pays now.
AbbVie, which was spun out of Abbott Laboratories last year, will become the latest and largest American company to look overseas for tax relief. Health care companies have pursued inversions with particular zeal for several reasons. In announcing the deal, AbbVie will join health care companies including Medtronic, Mylan, Actavis, Perrigo, Jazz Pharmaceuticals and Endo to strike inversion deals in recent years.
The use of such transactions is drawing increased scrutiny from lawmakers in Washington. On Tuesday, Treasury Secretary Jacob J. Lew sent letters to senior members of Congress, encouraging them to pass legislation halting inversions. The legislation being considered by some lawmakers would be retroactive, and if passed, could impede AbbVie’s ability to reincorporate in Britain.
Responding to Lew, Hatch said that he shared the administration’s concern about the increased pace of inversions. But he questioned the wisdom of retroactive legislation, and offered no specific proposal of his own.
“I must disagree with the administration’s position that we should, in the short term, enact punitive, retroactive policies designed to force companies to remain domiciled in the United States,’’ the senator said in a letter to the Treasury secretary.
In response to the political uncertainty, the merger agreements of many new inversion deals include a clause that allows the buyers to back out or renegotiate if the laws change. It was not known if the AbbVie agreement with Shire includes such a provision.
It will also set itself apart from Pfizer, the giant U.S. drugmaker that tried and failed to acquire AstraZeneca earlier this year for $119 billion. But Pfizer’s offer fell apart amid political opposition to the takeover in Britain, causing it to walk away.
Like Pfizer, AbbVie identified a European pharmaceutical company with complementary assets, and steadily increased the value of its offer for the company. Unlike Pfizer, AbbVie appears set to win its deal.