Tax inversion may have dominated business news headlines for months – but that could all be about to change.
The announcement that the board of U.S. pharmaceutical group AbbVie will meet next week to "reconsider" its $54 billion offer for Shire is the most high-profile agreed deal threatened by a U.S. clampdown. Washington is working to clamp down on the controversial tax strategy which involves companies moving their headquarters overseas to avoid paying U.S. tax on overseas income.
There is still uncertainty over whether the U.S. Senate will approve the new rules proposed by the U.S. Treasury in September, which are aimed at "when possible, stopping" inversion deals – but companies are being cautious as global anger builds against tax avoidance.
This comes less than two weeks after a planned $2.7 billion deal between pharma companies Salix and Cosmo, motivated in part by the opportunity to do a tax inversion, fell through.
"There's a lot of clamps and pressure coming down on these deals," Cole Smead, portfolio manager, Smead Capital Management, which holds AbbVie shares, told CNBC.
"The inversion is not the important part of this deal, it's to do with the accretion of cash."
Shire will receive a $1.6 billion termination fee if the deal falls through - substantially higher than the $139 million average termination fee payable by acquirer so far in 2014, according to Dealogic.
One of the biggest reasons for inversion deals is that some U.S. companies have built up hefty overseas cash piles, which would be taxed both in the market they were earned, and in the U.S. if they were brought back for tax purposes. However, if they use the cash to buy an overseas company and move their tax headquarters overseas, this might yield greater returns than simply leaving it.
"When you're making 20 basis points on cash, does it really matter how low a return you get (from a deal)?" Smead asked. "The biggest thing is, can that cash get used?"
The U.S. government announced measures to crack down on tax inversion in September, after a wave of mergers and acquisitions this year, particularly in the pharmaceuticals sector, were partly motivated by tax reasons. U.S. behemoths from Burger King to Pfizer are trying to cut down their tax bill by moving their headquarters overseas.
Ireland, where Shire is headquartered for tax reasons, has bowed to pressure from the U.S., Organisation for Economic Co-operation and Development, and the euro zone, with plans to close the "double Irish" tax loophole.
Savvas Neophytou, analyst at Panmure Gordon, still expects the deal to go through, as changes to U.S. law are "far from being a certainty and will likely take considerable time." However, market reaction to the AbbVie announcement suggests he is in the minority, as Shire's share price fell by 25 percent in early London trading. AstraZeneca and Smith & Nephew, two other potential targets for acquisitions partly motivated by tax reasons, were down by 3 percent and 2.7 percent respectively.