Big Deals Further Pharmaceutical Consolidation

AbbVie Inc. appears to be on the verge of a $53.7 billion takeover that would change its corporate address to the United Kingdom. Abbott Laboratories agreed Monday to sell part of its generic-drug business for $5.3 billion, structuring the sale in a way that opens the door for the buyer to reincorporate in Europe.

Fifteen miles south of the two companies’ shared campus in Lake County, Ill., Baxter International Inc. is preparing to split into two in 2015.

Its neighbor, Horizon Pharma Inc., plans to move its headquarters to Ireland this year, also as part of an acquisition.

A red-hot deal market has sparked a wave of consolidation that is reshaping the pharmaceutical and medical-device industry. Under pressure to cut costs and boost their bottom lines, health-care companies here and nationwide are marching toward a series of tie-ups, splits and divestitures.

Driven by a confluence of factors, the latest spate of activity in the health-care mergers and acquisitions market has been dominated by cross-border deals in which U.S. companies are reincorporating abroad, a maneuver called inversion.

The tactic has become a popular avenue for American companies seeking lower corporate-tax rates and a less-taxing way to deploy overseas capital that otherwise would be subject to hefty U.S. taxes if brought back.

Dozens of deals have closed over the past three years, but volume has increased in 2014 as companies strive to keep up with competitors and remain ahead of potential changes to U.S. tax rules that could reduce the potential benefits.

For years, companies were reluctant to pursue inversions because of a fear of confronting political blowback or being labeled as unpatriotic or as tax dodgers. But as more companies have gone that route, the stigma appears to be diminishing, particularly for companies that don’t deal directly with consumers.

Furthermore, firms are loath to stand by while their competitors become more profitable simply by moving their headquarters, at least on paper, across the Atlantic Ocean.

Abbott Laboratories was party to the latest deal, agreeing Monday to sell its specialty and branded generic pharmaceutical business in developed markets to Pennsylvania-based Mylan Inc. The all-stock transaction was valued at about $5.3 billion.

The deal, which would give Abbott about a 21 percent ownership stake in Mylan, is structured to move Mylan’s corporate-tax address to the Netherlands, allowing it to bolster its bottom line by reducing its effective tax rate.

Abbott would transfer a portfolio of about 100 products in five major therapeutic areas to a new public company in the Netherlands. From there, Mylan would merge with a wholly owned unit of the new company.

Abbott chief executive Miles White said Abbott does not intend to remain a long-term investor in Mylan and would strategically sell its position.

He said the company has yet to decide what it would do with the proceeds, which would initially be held overseas. If Abbott brought the cash back to the U.S., it would be subject to certain taxes.

But, White said, that’s not reason alone to seek an inversion for Abbott, despite the rapid march of its competitors out of the country.

“I don’t look at (inversion) as a strategic imperative for us. I don’t look at it as a necessary must-do,” White said.

White said the trend has turned a spotlight on the U.S. tax structure, and he urged Congress to address the issue so U.S. companies would have a “level playing field in terms of access to capital overseas.”

Meanwhile, AbbVie Inc., the proprietary drug business that spun off from Abbott in January 2013 and shares its corporate campus, moved a step closer Monday to buying Dublin-based Shire PLC for $53.7 billion with just four days remaining before a United Kingdom-imposed deadline.

AbbVie’s fifth offer, of about $91 a share, gained the tentative support of Shire’s board, according to a statement posted to its website. If the offer is accepted, the transaction will count as the biggest in the industry this year, according to Bloomberg.

Under the deal, AbbVie would lower its corporate-tax rate to 13 percent from 22 percent, gain access to offshore cash and diversify its drug portfolio by acquiring Shire, which has a cache of drugs that treat hyperactivity disorder and rare diseases.

In its proposal, AbbVie said it planned to create a U.S.-listed holding company but change its domicile to Britain. Shire is publicly traded in Britain.

The two companies remain in talks “on other terms of the offer” and a deal is not certain, Shire said.

Baxter International, meanwhile, is preparing to spin off its $6.6 billion biopharmaceutical unit into a separate, publicly traded company by the middle of 2015.

The spinoff would separate Baxter’s biotech segment from its $9 billion medical-products segment, which includes its fast-growing dialysis-products business, and intravenous fluids and medicines.