Drugmakers AbbVie and Shire have entered detailed talks about a possible merger after AbbVie raised its bid to $54 billion US.
Shire, based on the British island of Jersey, said it is interested in accepting the offer after AbbVie proposed a cash-stock combination valued at pounds £53.20 ($91) for each share of Shire.
- Pfizer merger plan raises issue of corporate tax shifting
- Corporate tax evasion 'crackdown' more bark than bite
- G20 finance ministers commit to block profit-shifting
For AbbVie, which was spun off Abbott Laboratories last year, one of the attractions is transferring its own headquarters to the low-tax jurisdiction of Jersey.
AbbVie, based in North Chicago, makes branded prescription drugs like anti-inflammatory drug Humira and pays about 22 per cent tax on its U.S. profit.
Seeking out lower-tax zone
If it merges with Shire it gains Vyvanse, a treatment for attention deficit hyperactivity disorder as well as drugs for gastrointestinal and rare diseases. But it also would pay tax of 13 per cent on its profits.
It joins a wave of so-called tax inversion deals from U.S. companies, including Pfizer's aborted takeover of AstraZeneca.
Another such deal went ahead Monday, as Mylan Inc. Canonsburg, Pa., agreed to buy the European generic drug unit of Abbott Laboratories, in a $5.3 billion deal. It will created a new company organized in the Netherlands ensuring a tax rate of below 21 per cent. Sweden's Meda AB spurned a tax-inversion takeover by Mylan earlier this year.
At 35 per cent, the United States has the highest corporate income tax rate in the industrialized world and also taxes companies on their overseas income. The European Union, by contrast, averages about 21 per cent.
The trend to tax inversions and profit-shifting overseas are raising concerns among U.S. lawmakers as they can cost the federal government billions in tax revenue.
Shire deal could open way for Valeant
Shire has said it is willing to recommend the AbbVie offer to its shareholders if certain other conditions are met. The board has entered into negotiations with AbbVie over those terms.
Shire's shareholders would own about 25 per cent of the combined new company, up from the 24 per cent stake proposed in earlier offers that the company rejected.
Shire's tentative agreement to recommend AbbVie's new offer could mean good news for Valeant, as it likely removes Shire as a potential partner for Allergan, which the Canadian company is attempting to take over.