AbbVie, Shire agree on approx $55 billion combination, will form new UK incorporated company

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The drugmaker AbbVie has reached a deal worth roughly $55 billion to combine with British counterpart Shire and become the latest U.S. company to seek an overseas haven from corporate income tax rates back home.

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 per cent of a new company created as part of the deal. AbbVie shareholders will hold the remaining 75 per cent.

That new company will be incorporated on the British island of Jersey, where Shire currently is headquartered.

U.S.-based multi-national companies looking to grow through acquisitions have been searching more fervently in recent years for these overseas combinations known as inversions. But the deals are drawing growing concern from President Barack Obama and members of Congress because they can cost the United States billions of dollars in tax revenue.

At 35 per cent, the United States has the highest corporate income tax rate in the industrialized world, and it also taxes income earned overseas and then brought home. That causes some companies to park millions of dollars in overseas accounts.

AbbVie said Friday it expects a tax rate of about 13 per cent by 2016 for the new company created in the deal. A statement from the drugmakers also said the deal gives the resulting company “flexible access to its global cash flows.”

AbbVie has said the new tax rate would represent a drop from its current rate of roughly 22 per cent.

Inversions can take place if shareholders of the foreign entity involved retain more than a 20 per cent 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.

This overseas move has grown more common among health care companies. Last month, U.S. medical device maker Medtronic Inc. said that it had agreed to buy Ireland-based competitor Covidien for $42.9 billion in cash and stock. The combined company would have executive offices in Ireland, which has a 12.5 per cent corporate income tax rate.

The largest drugstore chain in the United States, Walgreen Co., also is considering a similar move with Swiss health and beauty retailer Alliance Boots. Walgreen bought a 45 per cent stake in Alliance Boots a few years ago and has an option to buy the rest of the company.

AbbVie, which makes the blockbuster anti-inflammatory drug Humira, had made several unsolicited takeover bids for Shire before the two companies started talking about a possible deal earlier this month. Shire makes the attention deficit hyperactivity disorder medication Vyvanse as well as rare disease and gastrointestinal treatments.

Shire said Friday its board recommends that shareholders vote for the latest offer, and the deal will create “a well-positioned and focused specialty biopharmaceutical company.”

U.S.-traded shares of Shire PLC fell $2.84 to $250.60 before markets opened Friday and after the deal was announced. Shares of North Chicago, Illinois-based AbbVie Inc. slipped 77 cents to $52.75.

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