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Shire stock pummeled as merger deal falters

The future of a mega-merger between Shire and US drug maker AbbVie Inc. suddenly began to unravel Wednesday.
The future of a mega-merger between Shire and US drug maker AbbVie Inc. suddenly began to unravel Wednesday.REUTERS

Shares of Shire PLC, a specialty drug company with major operations in Lexington, plunged Wednesday as the future of a mega-merger between Shire and US drug maker AbbVie Inc. suddenly began to unravel.

Following disclosure that AbbVie, based near Chicago, was rethinking the $55 billion deal, Shire’s stock price declined 30 percent, losing about $74 to close at $170.49 on the Nasdaq exchange

Shares of AbbVie, which offered a 53 percent premium to acquire Shire, ended the day up nearly 1 percent.

AbbVie said it is reconsidering the transaction, because of concerns about new Treasury Department rules designed to rein in tax inversions, in which American companies incorporate abroad to avoid paying US taxes. AbbVie planned to shift its address to the British island of Jersey, where Shire is incorporated, to reduce its corporate tax rate to 13 percent. US-based companies pay 35 percent.

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Jason Gerberry, a specialty pharmaceuticals analyst at the Boston investment bank Leerink Partners, said AbbVie apparently doubts that it will be able to reap the tax benefits it expected. He said the company will probably try to pay a lower price to complete the deal.

“There’s a good deal of uncertainty now,” he said. “There’s a good degree of risk.”

There’s no guarantee that Shire, which rejected earlier, lower offers from AbbVie, would agree to a price cut. Shire said in a statement that AbbVie should proceed with the deal as negotiated. If AbbVie decides against the acquisition, it must pay Shire a break fee of $1.6 billion, Shire said.

Tax inversions have come under fire from politicians who say it is irresponsible for American companies to change their addresses simply to save on taxes. New rules, announced Sept. 22, “will significantly diminish the ability of inverted companies to escape US taxation,” the Treasury Department said.

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But another deal with implications for Massachusetts appears likely to go through, despite the rule changes. Minneapolis-based Medtronic Inc. has said it remains committed to buying Covidien Plc of Ireland, in a $42.9 billion deal. Covidien’s US headquarters are in Mansfield.

Shire is known for Adderall, a drug for attention deficit hyperactivity disorder. The company, which has 1,500 employees at research and manufacturing facilities in Lexington, also makes treatments for rare genetic diseases.

AbbVie, a spinout from Abbott Laboratories, is best known for Humira, a top-selling drug that treats rheumatoid arthritis and other conditions. Analysts believe AbbVie is too dependent on Humira. Acquiring Shire would allow AbbVie to diversify its business.

AbbVie has about 700 employees and a manufacturing plant in Worcester.

The AbbVie-Shire deal, if completed, would be among the biggest mergers in Massachusetts history. It is unclear how Massachusetts workers would be affected if the companies merge, though layoffs are typical in such deals. If the deal falls apart, business could continue as usual at both companies.

David Toung, an analyst at the New York research firm Argus Research, said despite the stock market reaction, it is too early to declare the merger dead.

Analysts at the global investment bank Credit Suisse said that the Treasury Department’s new rules clearly caught AbbVie by surprise. In announcing the deal in July, AbbVie said combining with Shire would create a diversified company with a stronger pipeline of products and enhanced research and development capabilities.

“Regardless of whether the deal falls through, we believe [AbbVie] management’s credibility may now be called into question given the non-inversion benefits they touted when initially selling the deal,” the analysts wrote in a research note.

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Priyanka Dayal McCluskey can be reached at priyanka.mccluskey
@globe.com
.