AbbVie walks away from Shire takeover bid

AbbVie recommended its shareholders vote against the deal

Vitamins made by Shire are displayed at a chemist's in northwest London on 11 July, 2014 (Reuters)

American pharmaceutical giant AbbVie has scrapped its $55 billion takeover of UK drugs firm Shire after US authorities moved to crackdown on so-called ‘tax inversion’ deals.

AbbVie, which had always insisted that its takeover bid was driven not for tax reasons but by commercial logic, recommended its own shareholders to vote against the deal.

Shire shares, which fell 22 per cent yesterday as AbbVie warned it was having second thoughts, fell another 7 per cent today to 3739p — a two day drop of 1400p.

That has left big US hedge funds, notably John Paulson’s, Magnetar Financial and Elliott Capital, nursing huge losses.

Paulson had built up a near 5 per cent stake in Shire and is now sitting on a loss of some £400 million.

In a strongly worded statement, AbbVie announced that its directors were no longer recommending the takeover shortly before the London stock market opened this morning.

“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 and we did not believe it was in the best interests of our stockholders to proceed,” said Richard Gonzalez, AbbVie’s chairman and chief executive.

The US Treasury has introduced rules banning US companies taking over foreign businesses in order to move their tax domiciles overseas and cut their tax bill.

AbbViw today spelt out its anger as the move by President Obama, pictured, saying: “The breadth and scope of the changes, including the unexpected nature of the exercise of administrative authority to impact long-standing tax principles, and to target specifically a subset of companies that would be treated differently than either other inverted companies or foreign-domiciled entities, introduced an unacceptable level of uncertainty to the transaction.”

AbbVie also confirmed it expects to pay Shire a break fee of $1.6 billion if the deal does not go ahead which seems inevitable now it is asking its own shareholders to vote it down.