A US pharmaceuticals group vowed to push ahead with a $5bn deal designed to slash its tax bill but tweaked the transaction following a White House crackdown that has torpedoed a string of so-called “inversions”.
Mylan, the US generic drugs maker, said it would change the terms of its agreement to buy a unit of Abbott Laboratories for $5.3bn, a deal that would allow it to reincorporate as a Dutch company and cut its effective tax rate from 25 per cent to the “high teens”.
It comes just a month after the US Treasury launched a crackdown on inversions, leading to the collapse of AbbVie’s $53bn acquisition of Irish drugmaker Shire and Salix’s $2.7bn inversion deal with Italy’s Cosmo Pharmaceuticals.
In a regulatory filing on Wednesday, Mylan said it would give Abbott a slightly larger stake in the company – 22 per cent instead of 21 per cent – a move apparently designed to satisfy a US Treasury rule that requires inversions to have more than 20 per cent foreign ownership.
In return, Mylan would be able to buy products and services from Abbott at better prices. Investors in both companies reacted negatively to the revised terms, with shares in Mylan falling 3.14 per cent and Abbott falling 1.9 per cent.
Abbott is planning to spin off its generics business in developed markets outside of the US and to sell it to Mylan, which will then form an entirely new company incorporated in the Netherlands. The deal is known as a “spinversion” because Mylan is buying a discrete business division rather than an entire company.
The recent US crackdown had intended to strip so-called “spinversions” of any tax benefits, and Mylan’s decision to press ahead with the Abbott deal suggests this section of the Treasury’s new rules is not proving as effective as hoped.
“Abbott still plans to close its deal with Mylan in the first quarter of 2015, despite pressure on inversions from the US Treasury, and some walking away by other companies from inversions,” said Edward Jones analyst Jeff Windau. “The changes from Treasury are making people re-look at deal terms, and deals are not as favourable now. That’s what happened here: there had to be some tweaks.”
Mylan has been vocal about its need to pursue an inversion to stay competitive in the generic drugs business. In July, when the deal was announced, the company’s chief executive described Mylan as “the last Mohican standing”.
“We’re the last in our sector to have announced an inversion or to be domiciled outside the US,” she said at the time.