Mylan is buying Abbott Laboratories’ generic-drug business and forming a new company that will be incorporated in the Netherlands, giving the new operation a lower- cost tax base.
Abbott will get 21% of the new organisation, valued at about $5.3bn (€3.9bn). Setting up the company in the Netherlands will drop Mylan’s tax rate below 21% in the first year, subsequently declining to the high teens. The company will be run by Mylan’s current executive team from Pittsburgh.
Since 2010, more than 15 US companies have announced or completed purchases of companies overseas and changed their addresses for tax purposes to gain lower rates, in a strategy known as tax inversion. The Mylan deal is among the first so-called “spinversion”, when a portion of a company is spun off and joined with another company in a transaction that allows the two to relocate in Europe.
The agreement could be a win for both companies, said Michael Weinstein, an analyst at JPMorgan Chase&. Abbott will get cash for its eroding European drug business and raise the growth prospects of its remaining units, while Mylan will get a lower tax rate, he said.
The Abbott drugs to be sold generated about $2bn in 2013 across Europe, Japan, Canada, Australia, and New Zealand. In exchange for the medicines and manufacturing facilities in France and Japan, Abbott will receive 105m shares of the new firm.
Abbott said it doesn’t plan to be a long-term shareholder in the new company, and will eventually sell the stock and use the proceeds for opportunities that would add to earnings. Abbott has been expanding the portion of its generic-drug business that operates in emerging markets, including the deal to buy Chile’s CFR Pharmaceuticals SA in May.
The announcement of the deal comes as AbbVie, the company split off from Abbott last year, moved a step closer to buying Shire plc after the Dublin-based company said it is willing to back a fifth offer of $53.7bn, which would be the biggest pharmaceutical takeover outside of the US this year.
If that deal is completed, AbbVie said it will change its legal address to the UK for tax purposes, an inversion that will potentially cut its rate to 13% from 22%. The acquisition would also allow Abbvie to add treatments for rare diseases and attention deficit disorder, easing its reliance on the arthritis injection Humira, which accounts for more than half of sales.