NORTH CHICAGO, Ill. — The pharmaceutical giant AbbVie agreed on Friday to buy its European rival Shire for around $54 billion in the biggest takeover deal so far this year.
If completed, the union would create one of the 50 largest companies in the world. With a market value of more than $137 billion, the enlarged AbbVie would be worth more than the likes of Boeing, McDonald’s and Cisco.
The takeover will allow AbbVie, based near Chicago, to reincorporate in Britain, allowing the U.S. company to reduce its overall tax bill. The company said Friday that it expected that the transaction would lower its effective tax rate to 13 percent by 2016 from 22.6 percent in 2013 last year.
“It will be domiciled in the U.K. for tax purposes,” AbbVie’s chief executive, Richard A. Gonzalez, said on a call with analysts Friday. “This structure provides AbbVie with flexible access to its global cash flows.”
The deal would be the largest-ever inversion: AbbVie, a recent spinoff of Abbott Laboratories, would be reincorporated on the small island of Jersey, in the English Channel. Shire, based in Dublin, is already incorporated in Jersey. A wave of U.S. companies - primarily in health care - have sought to do similar deals that would allow them to reincorporate in countries like Britain, Ireland or the Netherlands that have lower corporate rates than in the United States.
The acquisition of Shire comes as voices in Washington are being raised against allowing U.S. companies to move their tax domicile overseas in such deals. On Tuesday, Treasury Secretary Jacob J. Lew sent letters to senior members of Congress, encouraging them to pass legislation halting inversions.
Gonzalez said the debate in Washington should focus on broad corporate tax reform, rather than specifically on inversions.
When pressed by analysts, Gonzalez was adamant that taxes were not the primary driver of the deal. “This is a transaction we believe has excellent strategic fit,” he said. “We wouldn’t be doing it if it was just for the tax impact.”
AbbVie appears to be believe as much, and be betting that U.S. laws won’t change. Several recent inversion deals have included clauses that would allow the buyer to walk away or renegotiate terms if inversion laws change.
But this deal does not include any provision that would allow AbbVie to renegotiate if Congress votes to crack down on inversions retroactively.
And while the combined company will benefit from a lower effective tax rate, the transaction itself will be taxable to shareholders. This could result in a steep one-time tax bill for investors once the deal closes.