Boston, MA 10/15/2014 (wallstreetpr) – Proposals intended to make it difficult for American companies to shift their bases out of the U.S have reportedly forced AbbVie Inc. (NYSE:ABBV) to rethink its $55 billion takeover of Shire PLC (ADR) (NASDAQ:SHPG). AbbVie just like other companies is seeking to shift its base to Europe where tax rates are bearable.
$1.6 Billion in Breakup Fees at Stake
AbbVie Inc. (NYSE:ABBV) was pursuing Shire PLC (ADR) (NASDAQ:SHPG) at the back of the British government introducing tax breaks that are intended to encourage research and development. The announcement came in the wake of AbbVie announcing that it was committed to finalizing a deal with Shire. Shifting of bases to Europe will in one way or another lessen the company’s financial reliance on the arthritis pill, Humira, which is set to lose its U.S. patent protection in 2016.
It awaits to be seen whether AbbVie Inc. (NYSE:ABBV) will decide to cancel the takeover plans considering it is mandated to pay up to $1.6 billion in breakup fees should it opt out. Shire PLC (ADR) (NASDAQ:SHPG) is already urging AbbVie to finalize the takeover process. AbbVie board is set to discuss on the 20th of October the recent legislation by the U.S government and ascertain the kind of impact it will have on its operations going forward.
AbbVie Inc. (NYSE:ABBV) is not the first company to pursue bases outside the U.S. Burger King Worldwide Inc. (NYSE:BKW) has already announced plans to acquire Canada-based Tim Hortons. Pfizer Inc. (NYSE:PFE) on the other hand failed on its pursuit of AstraZeneca plc (ADR) (NYSE:AZN). Inversions allow companies to avoid paying hefty taxes back at home on profits accrued on investments overseas. Inversions have mostly been of benefit to drug companies who tend to accumulate huge chunks of cash overseas through the sale of drugs.
The treasury department has moved to close the loophole on the so-called ‘hopscotch loans’ that allowed foreign companies to lend money to newly incorporated parents. Doing so, parent companies remained exempted from paying taxes. Newly passed legislation consider the funds dividends and will consequently be taxed by the IRS.