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These deals may suffer in US ‘inversion’ crackdown

John Lamb | Photodisc | Getty Images

U.S. President Barack Obama's support for a law aimed at putting more stumbling blocks in the way of U.S. companies buying overseas rivals for tax purposes will make several big-money deals look a lot less attractive.

One key part of the legislation's announcement today is that it may apply to transactions completed before it hits the statute books.

(President Obama will discuss inversions and the state of the economy in an exclusive interview at 5 p.m. ET Thursday on CNBC-TV and CNBC.com)

This might mean that companies like Medtronic, which agreed a $42.9 billion purchase of Dublin-based Covidien for tax purposes just last month, will be hit with an unexpected new tax bill.

Rob Wyden, the Democrat Senator who chairs the U.S. Senate Finance Committee, warned on Tuesday that "up to 25" similar transactions made with the sole purpose of cutting a company's tax bill could be announced by the end of the year if action is not taken.

Another part of the proposed legislation which could be very important is that the proportion of the newly merged company consisting of the takeover target will be raised from the current 20 percent level -- which could wipe out cost savings at a stroke.

On top of this, share prices of U.K., Netherlands and Irish companies, particularly in the pharmaceuticals sector, have been boosted in recent months by the prospect of a U.S.-led inversion-related deal. Any gains are likely to be wiped out if these takeover bids seem less likely.

Here we outline some of the deals that may be affected.


Medtronic/Covidien

Medical devices specialist Medtronic announced in June a $42.9 billion cash-and-share deal to buy Covidien, a smaller rival which was founded in the U.S. but moved to Dublin for tax purposes. The larger company plans to move its headquarters to Dublin when the deal completes. Omar Ishrak, chief executive of Medtronic, has said that the main purpose of the acquisition was strategy rather than tax.

AbbVie/Shire

AbbVie is the company potentially most at risk of a hefty financial hit if the proposed U.S. legislation goes through. As part of this $55 billion deal, announced last week, Shire management insisted on a $500 million break fee if the deal does not complete for political reasons. AbbVie, formerly part of Abbott, planned to reduce its average tax from 22 percent to 13 percent by 2016 through relocating to London for tax purposes after buying Shire, which is best known for its ADHD treatments.

Pfizer/AstraZeneca

Pfizer, the U.S. big pharma giant, first embarked on its pursuit of the U.K.'s AstraZeneca last year, but was forced into the open in April. It faced high-profile criticism from politicians on both sides of the Atlantic, and ultimately failed to convince the AstraZeneca board of the merits of its $118 billion offer. However, from August 26, the companies can engage again under U.K. takeover rules, and the continued relative strength of AstraZeneca's share price suggests many had expected a return to the table.

Salix/Cosmo

U.S. based gastrointestinal specialist Salix announced plans in July to move its tax base to Ireland, after buying the Irish unit of Italy-based Cosmo, together with several of its medicines, for $2.7 billion worth of stock.


Mylan/Abbott Laboratories

Mylan, which specializes in drugs on which the patents have already expired, announced last week that it will slash its tax bill, after buying Abbott Laboratories' branded specialty and generics business in developed markets outside the U.S in a $5.3 billion deal.