American drugmaker AbbVie (ABBV) is buying U.K. competitor Shire (SHPG) for $55 billion, becoming the latest U.S. company to seek shelter from corporate taxes at home by moving its legal domicile to a tax haven overseas.
The companies said Friday that Shire shareholders will receive cash and stock valued at about 53.19 pounds ($91.07) for each of their shares. They will control about 25 percent of a new company created as part of the deal. AbbVie shareholders will hold the remaining 75 percent. That new company will be incorporated on the British island of Jersey, where Shire is headquartered.
"By combining AbbVie and Shire, we're creating a unique, diversified biopharmaceutical company," AbbVie CEO Richard Gonzalez said in a statement. "The combined company would benefit from a best-in-class product development platform, a stronger pipeline and more enhanced R&D capabilities."
U.S.-based multinational companies, including Chiquita (CQB), Pfizer (PFE), Walgreen (WAG), looking to grow through acquisitions have been searching more often in recent years for these overseas combinations known as inversions. The deals have raised concern from the Obama administration and members of Congress because they can cost the U.S. billions of dollars in tax revenue.
In a letter to lawmakers, according to The Wall Street Journal, U.S. Treasury Secretary earlier this week said Congress should end what he called an "abuse" of the U.S. tax system.
"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," he wrote. "But these firms are attempting to avoid paying taxes here, notwithstanding the benefits they gain from being located in the United States."
At 35 percent, the U.S. has the highest statutory corporate income tax rate in the industrialized world, although big companies are typically able to claim tax breaks and use loopholes to lower their effective rates. The U.S. also taxes income earned overseas and then brought home.
AbbVie has said it expects the combined company to pay a tax rate of about 13 percent by 2016 after AbbVie reincorporates on Jersey. That would be down from its current rate of roughly 22 percent.
Inversions can take place if shareholders of the foreign entity involved retain more than a 20 percent ownership in the newly merged business. Legally, the foreign company might acquire the U.S. business or the two create a new entity.
But the U.S. company often maintains both its corporate headquarters and control of the company. For the U.S., meanwhile, inversions threaten to erode the U.S. base, critics say.
U.S.-traded shares of Shire PLC fell $2.66 to $250.78 before markets opened Friday and after the deal was announced. Shares of North Chicago, Illinois-based AbbVie closed Thursday at $53.52.