AbbVie to Buy Shire in $55 Billion Deal That Slashes Tax Rate

(Los Angeles Times/MCT) -

Illinois drug maker AbbVie Inc. said Friday it will buy European rival Shire for $55 billion and reincorporate in Britain, allowing the company to slash its tax rate, in the latest move by an American firm to shelter its foreign earnings.

The deal creates a pharmaceutical giant with 30,000 employees and a $137 billion market capitalization. The new company will be headquartered for tax purposes on the British island of Jersey, where Shire is incorporated.

“The proposed transaction would create a well-positioned and focused biopharmaceutical company, giving us the opportunity to expand and augment our product portfolio, advance our pipeline, accelerate our growth, and create long-term value for our shareholders,” AbbVie Chief Executive Richard Gonzalez said in a message to company employees.

Among AbbVie’s products is the arthritis drug Humira. Shire is the maker of Adderall, a leading drug to treat attention deficit hyperactivity disorder.

The purchase adds fuel to an escalating debate in Washington about so-called inversions, in which an American multinational company buys a foreign competitor and restructures abroad to avoid paying the high U.S. corporate-tax rate on its offshore earnings.

AbbVie, which is based in North Chicago, Ill., will cut its overall effective tax rate from 22.6 percent last year to 13 percent in 2016 by reincorporating in Jersey, according to a regulatory filing Friday.

The U.S. corporate-tax rate is 35 percent. Jersey is a well-known tax haven because it has a zero percent standard corporate-tax rate.

The AbbVie/Shire deal is among the largest of about 50 inversions over the past decade. Several have been in the pharmaceutical industry.

Last week, another U.S. drug maker, Mylan Inc., of Canonsburg, Pa., agreed to buy Abbott Laboratories’ generic-drug business in developed countries. The move will lead to a new company incorporated in the Netherlands, where the corporate-tax rate is 25 percent.

Treasury Secretary Jacob J. Lew wrote to top congressional tax writers last week urging them to take quick action to restrict the tactic, which he called an abuse of the U.S. tax system.

The Obama administration and congressional leaders would like to address the problem through a broad tax overhaul that would lower the U.S. corporate rate, which is the highest among major developed economies.

But those efforts have stalled, causing some Democrats to push for stand-alone legislation that would make it more difficult for U.S. companies to restructure abroad.

Business groups and some top Republicans argue that companies are turning to inversions to remain competitive because many countries have lowered their corporate-tax rates in recent years.

“America’s business-tax system has simply not kept up with the demands of today’s global marketplace,” John Engler, president of the Business Roundtable trade group, said Thursday in response to Lew’s letter.

The Senate Finance Committee has scheduled a hearing for Tuesday to discuss the inversion issue and ways to develop “an internationally competitive tax code.”