Abbvie recommends calling off Shire takeover - UPDATE

The board of Abbvie has recommended shareholders vote against the $54bn takeover of Shire due to changes in US tax law.

“Abbvie and its board of directors made this determination following a detailed consideration of the impact of the US Department of Treasury’s unilateral changes to the tax rules,” the company said in a statement on Wednesday night.

Abbvie's board convened earlier than planned after Shire waived its right to a three-day notice period before such a meeting.

At this discussion Abbvie board members agreed that the proposed new rules clamping down on 'tax inversion' deals, which would have allowed the US company to avoid considerable amounts of tax, made the deal much less attractive.

“The breadth and scope of the changes, including the unexpected nature of the exercise of administrative authority to impact longstanding tax principles, and to target specifically a subset of companies that would be treated differently than either other inverted companies or foreign domiciled entities, introduced an unacceptable level of uncertainty to the transaction,” Abbvie said.

“Additionally, the changes eliminated certain of the financial benefits of the transaction, most notably the ability to access current and future global cash flows in a tax efficient manner as originally contemplated in the transaction,” it added.

“This fundamentally changed the implied value of Shire to Abbvie in a significant manner.”

If the deal falls through, as now looks inevitable, Shire is due a $1.64bn deal break fee, which will be of little consolation to shareholders after the stock fell 30% on Wall Street and 22% in London on Wednesday.

Unless Shire and the UK Takeover Panel agree otherwise, Abbvie must still convene an shareholder meeting to consider the and vote on the merger.

Shire put out a statement later in the morning saying its board was considering the current situation and would make further announcement shortly.

With the shares falling 22% in London on Wednesday and still further on Thursday, broker Panmure Gordon said the shares now looked "attractive" from a value perspective and as a potential bid target.

Analyst Savvas Neophytou said that Shire's plans to increase its revenue base by a compound annual growth rate of 12-13% by 2020 were achievable for a company growing consistently in double-digit range.

"It is possible that the loss of four months strategic direction may have damaged [Shire's growth] plans. Key staff may have made their own exit plans," Neophytou said.

"However, Shire's rare diseases business remains an attractive asset and we expect Shire to have multiple suitors."