Thursday, October 16, 2014


If you think government regulation has nothing to to with the orderly and successful running of businesses, consider the sad tale of AbbVie who you might remember as Abbot Labs (I know, me neither).  Earlier in the year AbeVie had announced a tender offer for the shares of the Irish pharmaceutical maker, Shire, at a price which was then a 53% premium to Shire's share price.  The markets loved it; a sound deal for AbbVie and a knockout for Shire's shareholders and every hedge fund in the world who bought everything in sight.

There was no question that the deal was to be structured as an inversion but it made sense in any case…but perhaps not at the agreed premium.  Well The Leader couldn't deal with missing an election year issue so he immediately instructed his Secretary of the Treasury, Jacob/Jack to fix the law which of course Jacob/Jack did in a few short weeks effectively ending the inversion dreams of the two parties.  Now whether the Secretary's actions were constitutional or not--I mean in this country laws are supposed to be changed by other duly enacted laws--the effect was to give AbbVie second thoughts.  Oh yeah, I know, you just don't do deals for tax reasons but tax effects can affect doing a deal or not.  Well today, AbbVie announced that they were no longer interested in the transaction.

Joy in Washington and at the Treasury!  We stopped the buggers from cheating the American people out of their duly-owed taxes and prevented these nere-do-wells from taking advantage of our tax laws!  Except………

You see, the deal did make sense from a business standpoint.  Both companies, according to people who know about this industry, was completely sound and accretive.  But to justify the price the tax implications derived from the law in place when the transaction was agreed and in complete compliance with that law had to be maintained or else the financial benefits would not be achieved.  Change the law, kill the deal.  And that is exactly what appears to have happened.

Of course, one can argue that AbbVie vastly played down the tax advantages in as a public relations ploy and for that there can be just criticism of management.  But what was gained here by the United States and its taxpayers due to the actions of The Leader and Jacob/Jack?   Was the commission of a crime prevented?  No the transaction was perfectly legal.  Was there a loss of tax revenue?  No. activities in the United States would continue to be taxed on the same basis except that with more turnover because of additional products the revenue might well be higher.  Would future taxes be reduced by off-shore use of untaxed income as debt financing?  Perhaps, but that is an almost infinitesimal amount in the grand scheme of things.  Would shareholders be protected or their holdings enhanced?  Indeed, precisely the opposite will occur.  Will there be increased tax revenue.  Nope.  Will shareholders be hurt?  Damn right they will…to the tune of a $1.6 billion break-up fee…not taking into account the afore-mentioned hedge funds who got hammered to the tune of 30% before they could blink an eye.

So why?  The politics of this administration; class envy, anti-business, single issues and a complete lack of either understanding or concern as to the effect upon economic development or both.  A perfectly sound merger which benefited all parties and was to have absolutely no effect on the finances of this country was killed because of political ideology.  Rather than engage in a true dialog in order to fix the tax code which is in desperate need of fixing, this is what we get.  We deserve better.

Say, did you here the one about the nurse who had treated an Ebola patient who died and who called the CDC to ask whether she could take a plane ride with a temperature of 99.7 and was told that was fine because the protocol called for concern only at 100.4 degrees?  BOY, is that one a knee-slapper!!!  I'm tellin' ya, this government must be a hell of a fun place to work!

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