AbbVie Tries To Get Shire Shareholders’ Suit Tossed
Law360, New York (April 06, 2015, 3:00 PM ET) — AbbVie Inc. asked an Illinois federal judge on Friday to dismiss a Shire PLC shareholders’ lawsuit claiming that it misrepresented the importance of tax incentives for the companies’ $55 billion merger that fell apart last year after the Obama administration tightened federal regulations in order to curb corporate inversions.
In its motion to dismiss, pharmaceutical company AbbVie claimed that a beneficial tax structure was always listed as one reason for the proposed merger and that terminating the deal once the tax incentives disintegrated was not evidence that it was the sole or primary impetus behind the deal, but that the new regulations rendered the agreed-upon price too high.
“AbbVie had agreed to pay a price for Shire based on the entire package of anticipated benefits,” a memorandum for the motion states. “Its termination of the deal because the loss of one material benefit made the agreed price no longer economically viable did not mean that benefit was ‘the primary rationale’ or the ‘sole’ reason for pursuing the transaction.”
Shire shareholders filed the class action suit in November, claiming that they were misled about the benefits of the proposed union and the effect of new rules governing mergers that result in U.S. companies redomiciling in tax-friendlier jurisdictions. Their complaint said that AbbVie and its CEO Richard Gonzalez made it seem like cost savings and other strategic advantages were the reason for pursuing the deal. And that Gonzalez even downplayed the importance of the tax benefits in an open investor call in July after the deal was announced.
“In contrast to these (false) public statements of AbbVie and Gonzalez, the tax considerations were the critical, if not the sole factors for AbbVie’s decision to enter into the combination,” the complaint says.
Shareholders claim that the unraveled merger caused Shire’s stock to plummet from its $244.57 close on Oct. 14 to a low of $156.25 the next day. They are seeking unspecified damages.
In its motion on Friday, AbbVie said that the company identified a number of primary factors that made the acquisition a boon, including adding Shire’s product lines to its own, expanding its research and development capabilities and increasing its earnings per share. It also listed the achievement of a beneficial tax structure and access to global cash flows as reasons for seeking the merger.
The U.S. Department of the Treasury announced its crackdown on corporate inversions in September, stiffening stateside stock ownership requirements and preventing U.S. companies from using “hopscotch loans” to bypass U.S. taxes when accessing offshore cash. Gonzalez wrote a letter to Shire workers days later saying that the deal was still on track. But in October, AbbVie announced that the deal, which would have been the largest inversion in history, had been scrapped and blamed it on the rule changes.
“Eliminating these anticipated benefits meant that while AbbVie still desired to acquire Shire for the other benefits it presented, the transaction could no longer be justified at the previously agreed-upon price,” Friday’s motion says.
AbbVie has already ponied up a $1.6 billion termination fee for the defunct deal.
The Shire shareholders are represented by Patrick H. Moran, Theodore B. Bell, Gregory M. Nespole and Benjamin Y. Kaufman of Wolf Haldenstein Adler Freeman & Herz LLC and Mark C. Gardy, James S. Notis, Jennifer Sarnelli and Meagan Farmer of Gardy & Notis LLP.
AbbVie is represented by Robert J. Kopecky, Sallie G. Smylie and Christa C. Cottrell of Kirkland & Ellis LLP.
The case is Rubinstein et al. v. Gonzalez et al., case number 1:14-cv-09465, in the U.S. District Court for the Northern District of Illinois.