The fallout from US drug giant AbbVie’s decision late on Tuesday evening to reconsider its $54bn (£32bn) takeover of Shire yesterday wiped over £8bn off the value of the British firm, and causing hedge funds banking on a successful deal to lose millions.
Shire’s stock, inflated on the expectation of a deal since June, collapsed by 21.54 per cent yesterday after AbbVie published a statement that its board would reconsider the deal due to: “the impact of the US Department of Treasury’s proposed unilateral changes to the tax regulations... including the impact to the fundamental financial benefits of the transaction.”
AbbVie had been eager to buy Shire to reduce its US tax bill by moving its tax base to Britain as part of a so-called tax inversion.
The US Treasury Department unveiled changes on 22 September to the rules for inversions, blocking US firms from using overseas cash to fund such deals.
Shire’s board said yesterday it believes AbbVie should proceed with the deal and noted a $1.63bn break fee would be payable by AbbVie if the deal is abandoned.
Some of the world’s best known hedge funds, including billionaire fund manager John Paulson’s Paulson & Co, Paul Singer’s Elliott Management and Magnetar Capital, were among the funds who had built up huge holdings in Shire.
Since 20 June, Paulson & Co has built up ts stake to around 4.7 per cent of Shire stock – worth £1.44bn on Monday – making it the firm’s second biggest investor. Its stake lost as much as £430m in value yesterday and is now worth around £1.01bn.
AbbVie’s decision also dragged down shares in fellow drugmakers AstraZeneca (fell 3.22 per cent), Smith & Nephew (fell 5.29 per cent) and GSK (fell 2.92 per cent) as it signalled the wider sector may no longer be as ripe a target for takeovers as had been previously thought. Falling pharmaceutical shares drove FTSE 100 and FTSE Eurofirst 300 losses yesterday.
Shire’s shares closed at 4,033p.
TAX INVERSION-RELATED SHARES HAMMERED BY SHIRE-ABBVIE FALL-OUT
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