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BUSINESS
Jack Lew

AbbVie scraps Shire deal, boosts dividend

Kevin McCoy
USA TODAY
File photo shows biopharmaceutical firm AbbVie's signature drug, Humira, in Houston. Drugmaker Shire wants AbbVie to stick with its roughly $55 billion acquisition bid, and it is reminding its U.S. counterpart of the hefty breakup fee it will receive if things don't work out. (AP Photo/David J. Phillip, File) ORG XMIT: NY113

U.S. biopharmaceutical firm AbbVie (ABBV) and Irish rival Shire (SHPG) formally terminated their proposed merger Monday, bowing to new federal rules designed to make such so-called corporate tax inversions less profitable.

While voicing regret over the firms' mutual decision, AbbVie CEO Richard Gonzalez said the company would move forward with new plans to increase shareholder value by hiking the company's dividend from 42 cents to 49 cents, payable Feb. 13, 2015.

AbbVie will also launch an approximately $5 billion stock buyback over the next several years, Gonzalez said in a Monday conference call.

AbbVie shares jumped 2.54% to $55.79 after-market following the announcements after closing up nearly 2% at $54.41 in regular Monday trading. Shire shares fell just under 1% to $182.78 after-market after closing up more than 3% Monday at $184.59.

AbbVie said the decision to scrap the $55 billion Shire deal, reached after the North Chicago-based firm's board withdrew its recommendation of the plan last week, was based on new federal interpretation of tax rules "in a uniquely selective manner designed specifically to destroy the financial benefits of these types of transactions."

The termination means AbbVie won't convene a stockholder meeting to consider the deal. Instead, the company will pay Shire the approximately $1.635 billion breakup fee specified in the original deal proposal.

The decision hands at least a short-term victory to the Obama administration, which enacted the new rules amid a recent wave of proposed inversions. The transactions involve U.S. firms reincorporating in lower tax nations in a bid to cut their future tax bills, while continuing many corporate operations domestically.

President Obama in July contended that U.S. firms that pursued inversions were legally but unfairly "gaming the system" and potentially undermining the federal tax base.

Treasury Secretary Jacob Lew announced the new rules on Sept. 22 after a politically-split Congress was unable to reach any agreement on dealing with the issue. While many Democrats backed the administration position, Republicans generally contended inversions should be addressed as part of a broad revision of the U.S. tax code, including a cut in the 35% top tax rate on companies' worldwide earnings.

The new Treasury rules, which took effect immediately, make it more difficult for American companies that finalize inversions to gain access afterward to millions of dollars held in overseas corporate subsidiaries without paying U.S. taxes on the funds.

Gonzalez said the rule changes introduced financial uncertainty that "fundamentally changed the implied value of Shire to AbbVie" in ways that made it impossible to achieve "an acceptable return for our shareholders."

"We are disappointed with Treasury's unprecedented approach," Gonzalez added during the conference call. "It does nothing to solve a fundamental problem of the U.S. Tax Code, which makes American companies less competitive with their foreign competitors and discourages investment in the United States."

Susan Kilsby, who chairs Shire's board of directors, said "whilst we are disappointed that the offer will not now complete, we continue to enjoy excellent prospects as we execute our plan to double Shire's product sales to $10 billion by 2020."

For its part, AbbVie has built a promising pipeline of late-stage pharmaceutical products that will fuel the company's future growth, said Gonzalez. Once approved, they will join AbbVie's Humira, a drug used to treat arthritis, Crohn's disease and similar ailments, and the company's other products, he said.

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