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AbbVie, the US pharmaceutical company, has said it is reconsidering its $54 billion takeover of UK drug maker Shire, putting it on track to become the biggest deal to be torpedoed by a White House crackdown on tax inversions.
AbbVie said in a statement late on Tuesday that its board would meet next week to reconsider there commendation it made in July, when it advised shareholders to vote in favor of a deal that would have created one of the largest pharmaceutical companies in the world.
The Chicago-based company said: "AbbVie's board will consider, among other things, the impact of the US Department of Treasury's proposed unilateral changes to the tax regulations announced on September 22, 2014, including the impact to the fundamental financial benefits of the transaction." Shire declined to comment.
The collapse of the deal, the largest ever US takeover of a European group, would cast doubt on one of the biggest drivers of deal making this year as companies have looked to use foreign takeovers to lower their taxes.
There have been 14 tax inversion deals so far this year, according to data from Dealogic and Credit Suisse. In these transactions US companies use a takeover to move their domicile to Europe to take advantage of lower corporate tax rates and access offshore cash without having to repatriate it and face US taxes.
Some of the biggest names in the hedge fund industry will be left nursing big losses if the deal falls through, after they piled into Shire's shares in anticipation of a transaction.
Paulson & Co, the hedge fund manager controlled by John Paulson, owns a 4.7 per cent stake in Shire, according to Bloomberg data, making it the group's second-largest shareholder. Other well-known hedge funds, including Elliott Capital and Magnetar Financial, are also big investors.
US-listed shares of Shire fell 8 per cent to $225 in after-hours trading in New York. AbbVie lost 2.1 per cent to $54.13.
The collapse of the deal would also mean that AbbVie would need to pay certain break fees to Shire that were negotiated in the event of the deal's collapse. AbbVie will pay $500 million if shareholders voted against a deal and $1.5 billion if it instructed shareholders to block a deal.
The action comes as the two sides have been racing to close the transaction by the end of the year as political scrutiny of tax inversion deals has picked up significantly. Less than two weeks ago AbbVie chief executive Richard Gonzalez told employees he was "more energized than ever about our two companies coming together".
If the transaction is cancelled, it would be the biggest casualty so far of the crackdown on tax inversions. Salix, the US pharmaceutical group, scrapped its plans for a $2.7 billion inversion deal with Cosmo Pharmaceuticals of Italy this month, blaming the "political environment" for the decision.
Bankers and lawyers say that inversions are still possible but that the economic benefits and strategic rationale have to be strong.
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This week, Steris Corp, the Ohio-based medical equipment maker, agreed a $1.9 billion takeover of the UK's Synergy Healthcare. The deal will allow it to re-domicile in Britain and cut its effective tax rate from 31.3 per cent to around 25 per cent by 2016.
The US Treasury department unveiled a series of measures last month designed to erode a principal attraction of inversion deals: the ability of companies to access earnings held offshore without paying US tax. AbbVie has a cash pile of $10.2 billion and says a "significant portion" is overseas.
Asked about the AbbVie announcement on Tuesday night, a US Treasury spokeswoman said the department did not comment on specific deals. But she pointed to a comment from Treasury secretary Jack Lew on the day anti-inversion measures were announced. "For some companies considering deals, today's action will mean that inversions no longer make economic sense."