Shire due $1.64bn if Abbvie pulls out of takeover deal - UPDATE

After US drugmaker Abbvie on Tuesday night said it was reconsidering its $54bn takeover of Shire, the UK company has pointed out it would be due a break fee of roughly $1.64bn if the deal falls through.

Abbvie said in a statement late on Tuesday that its board would meet next week to reconsider its recommendation of the merger agreement.

On 22 September the US Treasury announced that it was closing tax loopholes that allowed 'tax inversion' deals where US corporations could reduce their US tax by taking over foreign companies and moving their headquarters overseas.

"The board of Shire has not been provided with a detailed analysis of Abbvie's tax assumptions and Abbvie's notice does not quantify the anticipated financial impact of the US treasury notice on the combination," Shire said in a statement on Wednesday

Shire management said they believed that Abbvie "should proceed" with the recommended offer on the agreed terms.

"The board will meet to consider the current situation and a further announcement will be made in due course."

Judging by the market reaction, Richard Hunter, head of equities at broker Hargreaves Lansdown, said the likelihood of the deal "has all but disappeared", with the possibility of Pfizer approaching AstraZeneca anew "must also be in serious jeopardy".

Panmure Gordon thought that Abbvie will not call off the deal as the tax inversion proposals still require Senate support.

Mike van Dulken, of Accendo Markets, said that Shire shareholders "must be doing a double-take this morning" after shares sank to the same level they had been in mid-June.

He said the $1.6bn break fee was "far from compensation for the £10bn market cap gains which many considered to be in the bag with the deal set to close in Q4".

"The potential for a 20 October modification of the deal or indeed a full withdrawal is likely to have a significant knock-on for sentiment towards corporate activity given how this year’s strong flow of M&A helped markets towards recent highs. Beware the fallout."

Panmure Gordon said the deal should still go through. "In our view, such changes will require Senate support and this is far from being a certainty and will likely take considerable time," said analyst Savvas Neophytou.

"The board of Abbvie has a responsibility to its shareholders to consider new facts relating to any ongoing event that impacts shareholder value. Ultimately we expect the deal to go through."

Panmure continued to recommend investors to 'hold' shares of Shire with a target price of 5,300p.