Massachusetts biopharma companies will be watching closely to see if Pfizer Inc. can pull off a proposed $160 billion buyout of Allergan PLC that would lower the US drug giant’s tax bill by turning it into an Irish-based company.
If it succeeds, Shire PLC, which has more than 2,300 employees in Lexington, could be sitting on one of the most valuable assets in the industry: its Irish domicile.
Shire is technically headquartered in Ireland, like Allergan, but Shire’s top management team, including chief executive Flemming Ornskov, work out of Lexington. AbbVie Inc., an Illinois drug maker that agreed to buy Shire last year, dropped the deal after the US Treasury Department tightened regulations to make so-called “tax inversions” less financially beneficial.
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Pfizer’s deal with Allergan will be a test case to see if companies will be able to overcome US regulatory objections and consummate deals through the way they structure their mergers.
“If one of the motivations for Pfizer is the tax inversion and other companies want to follow suit, there are very few targets that are big enough to accomplish that,” said Glen Giovannetti, the Cambridge-based global life sciences sector leader for consulting firm Ernst & Young. “Shire might be in that category.”
But he noted that the Treasury Department instituted new rules last year specifically to dissuade US companies from changing their tax domiciles by acquiring companies like Shire. Among them was an increase in the percentage of a combined company that investors in a target company would be required to hold after a merger, making it more difficult for a larger company to lower its tax obligations by taking over a smaller company.
Still, “it’s a wide open merger environment,” Giovannetti said. “We’re still in a period where transactions can happen.” He said Shire could be attractive because of its strong rare disease drug pipeline as well as its Irish headquarters.
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Shire, for its part, is currently pursuing its own takeover offer for another Illinois drug maker, Baxalta Inc., which thus far has rejected the Shire bid.
Massachusetts is no stranger to tax inversion. Last year, Covidien PLC, an Irish supplier of health care products with US headquarters in Mansfield, was purchased for $42.9 billion by Medtronic Inc. a Minneapolis medical device maker that used the deal to shift its headquarters to Ireland.
Another state biotech, Waltham-based Alkermes, bought Ireland’s Elan Drug Technologies in 2011 and then moved its own headquarters to Dublin.
Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.