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March 30 — Shire Plc investors can't proceed with a putative class action accusing AbbVie Inc. of violating federal securities laws by making false and misleading statements in connection with the companies' failed tax inversion deal, a federal judge ruled March 29.
Judge Robert M. Dow Jr. from the U.S. District Court for the Northern District of Illinois said the investors hadn't adequately pleaded that AbbVie made material misrepresentations in statements made before the merger was abandoned.
The court also concluded that AbbVie Chief Executive Officer Richard Gonzalez didn't act with scienter—or improper intent—in expressing enthusiasm about the deal in a statement sent to Shire employees and filed with the Securities and Exchange Commission a week after the U.S. Treasury Department said it would take steps to stymie tax inversions.
The court dismissed the investors' lawsuit without prejudice, giving them until May 2 to file an amended complaint.
North Chicago, Ill.-based AbbVie planned to buy Shire for an estimated $52 billion, then move the combined company's legal address to the U.K. to lower its tax bill and access cash trapped overseas. As part of the deal, AbbVie agreed to pay a termination fee of $1.64 billion if the transaction wasn't completed.
The two companies in October 2014 agreed to terminate what would have been the biggest U.S. tax inversion at the time after AbbVie pulled its support for the deal in the wake of proposed changes to U.S. rules governing such transactions .
In their lawsuit, the investors alleged that AbbVie violated 1934 Securities Exchange Act Sections 10(b) and 20(a) by downplaying or denying that the tax inversion was “the make-or-break reason for the merger.”
The court concluded that AbbVie's statements disclosing the deal's benefits didn't create a corresponding duty to disclose that it might call off the acquisition and pay the breakup fee if the tax benefits disappeared.
Additionally, Gonzalez's statement that tax benefits weren't the “primary rationale” for the merger wasn't materially misleading, the court found.
The court observed that the breakup fee was about 3 percent of the deal's value and that it was expected that the loss of any benefit over this threshold could cause AbbVie to terminate the transaction.
“But it does not follow that any benefit of the deal that is worth at least 3% of the transaction value must be the ‘primary'—i.e. the ‘most important'—reason for the deal,” Dow wrote. He added that the defendants correctly pointed out that saying a benefit isn't the “primary rationale” isn't the same as saying it's “immaterial or unimportant.”
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The opinion is available at http://www.bloomberglaw.com/public/document/Rubinstein_v_Gonzalez_No_14cv9465_2016_BL_96777_ND_Ill_Mar_29_201.
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