U.S. drugmaker AbbVie Inc (NYSE:ABBV) said on Monday it has reached agreement with Shire Plc to officially call off its proposed $55 billion purchase of the Irish company, and will pay Shire a $1.64 billion breakup fee for walking away from the deal.
AbbVie, which last week said its board of directors had withdrawn its recommendation to proceed with the Shire purchase, blamed the unraveling on last month's rules changes by the U.S. Treasury Department aimed at curtailing a wave of such deals in which U.S. companies would redomicile overseas to take advantage of lower corporate tax rates in other countries.
In announcing termination of the agreement, AbbVie said the U.S. Treasury moves "re-interpreted longstanding tax principles in a uniquely selective manner designed specifically to destroy the financial benefits of these types of transactions."
AbbVie said the new rules would keep it from gaining access to its overseas cash without having to pay hefty U.S. taxes.
The company's Chief Executive, Richard Gonzalez, on a conference call with investors, said the new rules and possible future changes "created an environment of risk and uncertainty which makes proceeding not in the best interest of our shareholders."
AbbVie, which was spun off from Abbott Laboratories in early 2013, said it conducted a thorough review of the Treasury rules changes on so-called tax inversion deals to explore options aimed at preserving the merger.
"The executive management team ultimately concluded that the transaction was no longer in the best interests of stockholders at the agreed upon valuation, and the board fully supported that conclusion," the company said in a statement.
In addition to tax benefits, the acquisition would have given AbbVie Shire's portfolio of lucrative medicines for rare diseases and other specialty drugs, lessening the Chicago-based company's dependence on its rheumatoid arthritis treatment Humira - currently the world's top selling drug with annual sales approaching $13 billion.
Separately, AbbVie announced moves aimed at returning cash to shareholders. It said its board had authorized a new $5 billion stock repurchase program and a nearly 17 percent increase of its quarterly dividend payment to 49 cents a share.
AbbVie shares rose 1.8 percent to $55.40 in extended trading from their New York Stock Exchange close at $54.41.
(Reporting by Bill Berkrot; Editing by Bernard Orr and Andrew Hay)