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By Sophia Pearson and Jef Feeley
Sept. 16 — AbbVie Inc.'s $54.5 billion purchase of Shire Plc to move its legal address abroad and lower its taxes could trigger significant capital gains liability for shareholders, a Louisiana pension fund charges in a lawsuit filed Sept. 15 in the Delaware Chancery Court.
The Shire acquisition is the largest of a recent wave of controversial tax inversion buyouts, which have divided Washington. AbbVie should be barred from holding a shareholder vote on the takeover until it addresses problems with the deal, including a coercive $545 million termination fee, the Plumbers & Steamfitters Local 60 Pension Plan say in the lawsuit.
The lawsuit comes as U.S. government officials vow to deter U.S. companies from buying foreign competitors to avoid domestic taxes. President Barack Obama called U.S. companies seeking foreign mergers to circumvent taxes “unpatriotic” and Treasury Department officials said they are considering options to crack down on such transactions.
North Chicago, Illinois-based AbbVie's and Dublin-based Shire's tax inversion deal “is considered a taxable event by the U.S. Internal Revenue Service,” the New Orleans-based pension fund says in the complaint.
That means some AbbVie investors will “owe taxes they otherwise would never have had to pay” and may have to sell their shares to satisfy that liability, the fund argues.
Gulden Mesara, an AbbVie spokeswoman, wasn't immediately available for comment on the lawsuit. Gwen Fisher, a U.S.-based spokeswoman for Shire, didn't immediately return a call for comment.
Shire shareholders are slated to get cash and stock valued at 52.48 pounds a share, which was 53 percent above Shire's closing price on the day the deal was announced in May.
The acquisition would allow AbbVie, which is incorporated in Delaware, to move its legal residence, though not its operations, to the U.K., lowering its tax rate in 2016 to 13 percent from 22 percent.
The move out of Delaware, corporate home to more than half of the publicly traded U.S. companies and more than three-fifths of the Fortune 500, means AbbVie shareholders will lose more robust “stockholder rights and protections” than are offered under U.K. law, the pension fund says in the lawsuit.
AbbVie shareholder rights also are affected by the board's agreement to pay as much as $545 million in termination fees if investors vote down the deal, the fund argues. The fund wants the company and Shire to reduce what they call an unusually high “naked no vote” fee.
“If a board is going to impose this type of penalty on stockholders for exercising their franchise, it should only be in exchange for the board obtaining a blockbuster deal,” the fund says.
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The complaint is available at http://www.bloomberglaw.com/public/document/Plumbers__Steamfitters_Local_60_Pension_Plan_vs_Robert_J_Alpern_M.
©2014 Bloomberg L.P. All rights reserved. Used with permission.
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