Mylan Inc. is buying Abbott Laboratories' generic drug business in established markets like Europe and forming a new company that will be incorporated in the Netherlands, cutting its taxes.
Abbott will get 21 percent of the new organization, a share valued at about $5.3 billion, the Abbott Park, Ill.-based company said Monday in a statement. Setting up in the Netherlands will drop Mylan's tax rate to less than 21 percent in the first year, subsequently declining to the high teens. The company will be run by Mylan's executive team from Pittsburgh, where Mylan's headquarters are now.
Since January 2012, 19 U.S. companies have sought or completed purchases of companies overseas and changed their addresses to gain lower tax rates, a move known as inversion. The Mylan deal is among the first of the so-called spinversions, when a portion of a company is joined with another in a transaction that allows both to relocate.
"This transaction, in our view, is a win for both companies," said Michael Weinstein, an analyst at JPMorgan Chase & Co. in New York, in a note to clients Monday. 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.
Mylan Chief Executive Heather Bresch said the company didn't have an option when it came to moving its tax base abroad as her competitors left.
"We were the last Mohican standing," she said in a telephone interview. "We're the last in our sector to have announced an inversion or to be domiciled outside the U.S.," she said. The move "gives us a very competitive landscape to pursue other opportunities."
The announcement comes as AbbVie Inc., the company split off from Abbott last year, moved a step closer to buying Shire PLC after the Dublin-based company said it's willing to back a fifth offer of $53.7 billion, which would be the biggest industry deal this year.
If that deal is completed, AbbVie, based in North Chicago, Ill., has said it will change its legal address to the United Kingdom for tax purposes, an inversion that will potentially cut its rate to 13 percent from 22 percent.
Sen. Ron Wyden, the Oregon Democrat who chairs the Senate Finance Committee, said companies are paying attention to his efforts to impose retroactive limits on inversions. In an interview, Wyden said Fridley-based Medtronic Inc.'s inclusion of a clause allowing it to unwind a deal to acquire Covidien PLC and renounce its American address if tax law changes shows that he is having an impact.
"If you have American companies that have been major employers, employers that pay good wages, saying that they're just gonna pack up and go somewhere else so they can have a lower tax rate," Wyden said, "that has very ominous implications for our country."
The Mylan/Abbott deal is expected to close in the first quarter of 2015. The new company will have sales of about $10 billion annually from more than 1,400 medicines, Mylan said.
