Despite saying a fortnight ago that its merger with Shire would go ahead despite a tax inversion clampdown in the USA, AbbVie is now reconsidering the $54 billion deal.

AbbVie put out a statement late last night about the board’s intention to reconsider its recommendation of the offer made to Shire on July 18. Its directors plan to meet on Monday to discuss “whether to withdraw or modify its recommendation” in light of the impact of the US Treasury’s move  last month to stop companies using foreign takeovers as a means to lower their taxes.

The news came as a surprise, not least to Shire which says it has “not been provided with a detailed analysis of AbbVie’s tax assumptions”. Also the US firm’s announcement “does not quantify the anticipated financial impact of the US Treasury notice on the combination”.

$1.64 billion break fee

Shire said it believes AbbVie should proceed with the recommended offer “on the agreed terms” and its own board will meet “to consider the current situation”. The Ireland-domiciled group also pointed out that if AbbVie does pull out, the agreed break fee is $1.64 billion.

After the Treasury move to block tax inversions, a number of analysts suggested that the AbbVie/Shire deal was unlikely to be affected and AbbVie chief executive Richard Gonzalez issued a memo to staff saying “I’m more energised than ever about our two companies coming together”.

His note went on to say that “when we first considered Shire joining together with AbbVie it was because we saw the opportunity to lead and grow in important therapeutic areas.  It was also because we saw a complementary pipeline that would be positioned to enhance innovation”.

However, it would appear that the tax implications of the proposed deal may have indeed been the driving force for AbbVie after all. The news has gone down badly with Shire investors and the stock has collapsed 25% to £38.53 by 9.40 (UK time).

UPDATE: Commenting on the move, Ana Nicholls, healthcare analyst at The Economist Intelligence Unit, said “it is hardly surprising” that AbbVie is rethinking its Shire merger in light of the new US tax inversion rules, citing Barclays figures that the resulting tax savings would amount to $1.3 billion a year by 2020.

More to deal than tax savings

However she added that “there are other benefits to the Shire merger besides tax savings”, noting that AbbVie faces patent expiries on its mega-blockbuster Humira (adalimumab) in 2016 “and is keen for new products to help fill its pipeline”. Ms Nicholls stressed that Shire” not only offers a strong line-up of ADHD drugs but also a promising portfolio of drugs for rare diseases, which command a higher price from insurers and health funds. Its new drug pipeline is also fairly strong, with seven drugs in late-stage development or awaiting marketing approval”.
She concluded by saying “this is only a rethink” and AbbVie's board may try to renegotiate the price or change other terms of the deal. However, she believes it is notable that Shire chief executive Flemming Ornskov, “who resisted AbbVie's initial offers so strongly, is now proclaiming his enthusiasm for the deal”.

This evening, Shire also announced that, "in order to allow the period of uncertainty for its shareholders, employees and other stakeholders to be reduced", it has agreed to waive the requirement for three business days’ notice for AbbVie’s board to meet to consider its recommendation of the offer.