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    AbbVie board recommends against $55b merger with Shire

    A screen displayed the share price for pharmaceutical maker AbbVie on the floor of the New York Stock Exchange in July.
    Brendan McDermid/REUTERS
    A screen displayed the share price for pharmaceutical maker AbbVie on the floor of the New York Stock Exchange in July.

    The biopharmaceutical company AbbVie Inc. reversed course on its planned acquisition of specialty drug maker Shire PLC this week, but Shire, which has major operations in Massachusetts, will remain a strong company without the deal, analysts said.

    Shire was the target of the $55 billion merger, which would have been one of the largest in Massachusetts history, similar in size to Procter & Gamble Co.’s takeover of Gillette Co. in 2005. As an independent company, analysts said, Shire still has several successful drugs on the market and promising treatments under development.

    AbbVie’s courtship of Shire may even have raised Shire’s profile, making it a more attractive target to other pharmaceutical giants. Without AbbVie, Shire would also be free to pursue its own acquisitions, analysts said.

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    Shire has labs and manufacturing facilities in Lexington, where it employs about 1,500.

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    “They have a lot of options,” said David Amsellem, a research analyst at Piper Jaffray & Co., a New York investment bank. “It may not be AbbVie, but it could be another merger partner. I think they would garner interest from other potential suitors.”

    AbbVie, of North Chicago, Ill., announced in July that it would acquire Shire, not only for Shire’s portfolios of drugs, but also its foreign address. Through the merger, AbbVie planned to incorporate in the British Island of Jersey, where Shire is incorporated, so it could cut its tax rate by nearly two-thirds.

    But with new Treasury Department rules making it harder for American companies to lower their taxes by going abroad, AbbVie’s board of directors suddenly decided to ask shareholders to vote against the deal with Shire. Without the tax benefits, the price for Shire — which included a 53 percent premium — was too high, AbbVie said.

    “Although the strategic rationale of combining our two companies remains strong, the agreed-upon valuation is no longer supported as a result of the changes to the tax rules,” Richard A. Gonzalez, AbbVie’s chief executive, said in a statement. “We did not believe it was in the best interests of our stockholders to proceed.” Shire said Thursday it is “considering the current situation and a further announcement will be made in due course.”

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    The Treasury Department announced new rules on Sept. 22 to close loopholes that allow US companies to reap tax benefits by changing their addresses to foreign locations, a practice known as an inversion. The United States’ corporate tax rate of 35 percent is among the highest in the world.

    The new rules caused Salix Pharmaceuticals Ltd. of North Carolina and Cosmo Pharmaceuticals SpA of Italy to call off their planned merger. Other companies are probably reevaluating similar inversion deals, said Steven M. Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center in Washington.

    “There are a whole bunch of deals in the offices of the investment banks ready to move forward that are on hold while companies calculate what tax benefits will remain,” he said.

    In another deal with implications for Massachusetts, Minneapolis-based Medtronic Inc. is still on track to buy Covidien Plc of Ireland for $42.9 billion. Covidien’s US headquarters are in Mansfield.

    Shire is entitled to a $1.6 billion break fee if AbbVie officially drops its bid. Shire’s stockholders, however, will miss out on the healthy premium that AbbVie would have paid the for Shire’s shares.

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    Shire’s stock value plunged 30 percent Wednesday, then recovered 4.7 percent on Thursday, closing at $178.46 on the Nasdaq exchange. The company has lost billions in market value this week.

    “There’s a lot of work to do to get that value back,” said Jason Gerberry, an analyst at the Boston investment bank Leerink Partners.

    Shire’s strongest products include Vyvanse, a drug for attention deficit hyperactivity disorder. The company also makes treatments for rare conditions, including Gaucher and Fabry diseases. Drugs for such rare diseases are lucrative because they command higher price tags than more widely used drugs.

    AbbVie is largely reliant on Humira, a blockbuster drug for rheumatoid arthritis and other conditions. A spinout from Abbott Laboratories, the company has about 700 employees at facilities in Worcester.

    Analysts said the merger process probably has been a distraction for Shire employees, but their jobs are probably more secure if the merger doesn’t go through.

    “It’s still one of the top companies in this industry,” said David Steinberg, analyst at the investment bank Jefferies LLC in San Francisco. “It’s in a fairly enviable position.”

    Priyanka Dayal McCluskey can be reached at priyanka
    .mccluskey@globe.com
    . Follow her on Twitter @priyanka_dayal.