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AbbVie and Shire Said Working to Reach Agreement Before Morning

Shire Plc and AbbVie Inc., working to finish negotiations on a $53.7 billion deal before a U.K. takeover panel deadline, are hammering out the details of an agreement, people with knowledge of the matter said.

Negotiating teams from both companies are at the law offices of Davis Polk & Wardwell in New York in an effort to finalize terms and announce a deal tomorrow morning in London, said one of the people, who asked not to be identified discussing private information. Under British takeover rules, AbbVie, based in North Chicago, Illinois, needs to make a formal offer by 5 p.m. London time tomorrow or walk away for six months in most circumstances.

While the companies could seek an extension of the “put-up or shut-up period,” as it’s called, they are working out the final terms of a transaction, including a breakup fee that would be paid to Shire if the deal falls through, two of the people said. Shire’s board said this week it would be willing to back a 31.4 billion pound ($53.7 billion) offer, and that it was in talks with AbbVie about other issues.

AbbVie’s latest proposal, its fifth, valued Shire at about 53.20 pounds a share when it was announced July 14. With the decline in AbbVie’s stock since then and shifts in the dollar-pound exchange rate, the value has dropped to about 52.27 pounds. Shire, based in Dublin, climbed less than 1 percent to 48.06 pounds in London today, giving the company a market value of about 28 billion pounds.

Representatives for AbbVie and Shire declined to comment. A spokeswoman for Davis Polk also declined to comment. The Financial Times reported earlier that the companies may announce a deal as soon as tomorrow morning.

Tax Residence

If a deal is completed, AbbVie will move its tax residence, though not its management offices, abroad to the U.K. in a so-called tax inversion, lowering its tax rate to 13 percent from 22 percent.

The U.S. government has been scrutinizing such deals, and Senator Ron Wyden, a Democrat from Oregon, is proposing a bill that would make them more difficult to do. A breakup fee remains a sticking point, because Shire wants some protection in case the U.S. government passes a law that would undercut AbbVie’s tax benefits and put the deal’s closing at risk, two of the people said.

In addition to changing its tax domicile, AbbVie would add Shire’s array of treatments for rare diseases, diversifying its portfolio which is dominated by a single drug, the arthritis medicine Humira.

AbbVie’s bid for Shire is the latest merger in a period of increased acquisition activity in the drug and medical device industry. Not including the AbbVie offer, there were $264 billion of deals proposed or completed in the second quarter, according to data compiled by Bloomberg, five times more than any quarter since at least 2009.

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