After Tax Inversion Rules Change, AbbVie and Shire Agree to Terminate Their Deal

After Tax Inversion Rules Change, AbbVie and Shire Agree to Terminate Their Deal

A week after AbbVie said it was reconsidering what had been the biggest agreed deal of the year – as well as the biggest ever inversion – the two companies said late Monday that they would terminate the deal. AbbVie will now pay Shire a $1.635 billion breakup fee.

The unraveling of the merger came swiftly, just weeks after theTreasury Department announced new rules taking aim at inversion deals.

AbbVie’s proposed $54 billion acquisition of Shire was structured as an inversion, and would have allowed AbbVie to reincorporate in Britain, lowering its tax bill. To fund the deal, AbbVie had planned to use billions in overseas cash that would not have been taxed if the company had completed the inversion. But among other changes, the new Treasury rules meant that AbbVie would have had to pay taxes on that cash, eliminating many of the financial benefits of the deal.

In announcing the termination of the deal, AbbVie lashed out at the Obama administration for changing the rules so abruptly. The Treasury’s notice last month “reinterpreted longstanding tax principles in a uniquely selective manner designed specifically to destroy the financial benefits of these types of transactions,” AbbVie said in a statement. This was a change in tune for AbbVie, which previously said that its deal for Shire was not motivated by tax considerations, and was mostly about the strategic fit.

AbbVie added that it wasn’t confident that the rules wouldn’t abruptly change again. “The notice introduced an unacceptable level of risk and uncertainty given the magnitude of the proposed changes and the stated intention of the Department of Treasury to continue to revise tax principles to further impact such transactions,” it said.

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