Drugmaker AbbVie to buy Shire for $54.8 billion

Shire P.L.C. is headquartered in Ireland but has operations in Exton and Wayne (above).
Shire P.L.C. is headquartered in Ireland but has operations in Exton and Wayne (above). (TOM GRALISH / Staff Photographer, file)
Posted: July 20, 2014

The corporate rush to pay less in U.S. taxes reached a new milestone Friday when drugmaker AbbVie agreed to pay $54.8 billion to acquire Shire P.L.C.

In such so-called tax inversions, U.S.-based corporations buy other corporations whose tax "domiciles" are in countries with lower corporate taxes, while leaving most of their operations and employees in the United States.

About 1,000 of Shire's approximately 5,000 employees (and 300 contractors) work in Chesterbrook - the deal's impact on them is unclear - with nearly 40 percent of revenue tied to medicine for attention deficit hyperactivity disorder.

That revenue will help AbbVie, which is overly dependent on one drug (Humira), but the North Chicago-based company wanted Shire because Shire is domiciled in Jersey. Not New Jersey, but the 45-square-mile hunk of rock that is one of the Channel Islands.

Though closer to France, Jersey is a British crown dependency, and its 99,000 citizens are defended and internationally represented by the government of the United Kingdom. It has no taxes for corporations. AbbVie formed a new corporation in Jersey for this deal and, if approved by regulators, will reduce its effective tax rate from 22 to 13 percent. Though full of loopholes, standard U.S. corporate tax rates are 35 percent.

Other recent corporate acquisitions, including other Philadelphia-area drugmakers, have involved buying companies in Ireland, the Netherlands and Canada for the sake of lower taxes. New York-based Pfizer tried unsuccessfully to buy British-based AstraZeneca for more than $100 billion.

Referring to the Shire deal, Bernstein Research analyst Ronny Gal wrote in a note to clients that "the transaction puts more pressure on the remaining U.S. drug companies to re-domicile overseas or at least supports the drive to change laws in the U.S."

Urging a new sense of "economic patriotism," Treasury Secretary Jack Lew sent a letter to Congress Tuesday seeking quick changes in tax laws to stem the tide, even if a larger revamping of the tax code has to wait.

"The firms involved in these transactions still expect to benefit from their business location in the United States, with our protection of intellectual property rights, our support of research and development, our investment climate, and our infrastructure, all funded by various levels of government," Lew wrote. "But these firms are attempting to avoid paying taxes here, notwithstanding the benefits they gain from being located in the United States."





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