There’s an old saying in pro sports that when a player says “it isn’t about the money,” it’s always about the money. The same thing seems to be true in some of these massive “tax inversion” deals, in which a U.S. company agrees to buy a smaller foreign business and relocate its headquarters overseas.
After all, what conclusion other than outright deceit can we draw from yesterday’s news that Chicago-based pharma giant AbbVie Inc. (ABBV) has canceled its proposed $54 billion acquisition of Ireland-based Shire PLC (SHP).
When the deal was first announced in July, AbbVie insisted that tax was only a secondary rationale. Just read a few of these comments from AbbVie CEO Rick Gonzalez, during an analyst and investor call from July 21:
“What I would tell you is that this transaction has a significant, both strategic and financial, rationale. Tax is clearly a benefit, but it’s not the primary rationale for this.”
“As I mentioned in my comments a moment ago, this is a transaction that we believe has excellent strategic fit and has compelling financial impact well beyond the tax impact. We would not be doing it if it was just for the tax impact.”
“When we look at this particular transaction we are excited about the pipeline. We are excited about the growth aspects of several of their franchises and being able to incorporate that into our business. There are opportunities for different kinds of synergies beyond tax.”
Subsequent to that call, the U.S. Treasury devised new rules that curtailed the tax benefits of such transactions. Obviously not something that would please Rick Gonzalez, but not a deal-breaker. Right? I mean, the White House didn’t meddle in all of those exciting pipeline synergies.
Wrong, of course. In announcing its decision yesterday to kill the deal — which triggered a $1.6 billion termination fee — AbbVie explicitly stated that the change in course was promoted by Treasury’s actions. Here is Gonzalez, now freed from having to pretend that it wasn’t about the taxes:
“The unprecedented unilateral action by the U.S. Department of Treasury may have destroyed the value in this transaction, but it does not resolve a critical issue facing American businesses today. The U.S. tax code is outdated and is putting global U.S.-based companies at a disadvantage to foreign competitors in an area of critical importance, specifically investing in the United States. Comprehensive tax reform is essential to create competitiveness and to stimulate investment in the economy.”
I guess I could give AbbVie and Gonzalez some credit for pulling the plug on behalf of long-term shareholder value, rather than following through in order to save short-term face. But I’d have given them much more credit had they been honest in the first place.
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