More Tax Inversions: Abbott Selling Part of Generic Drug Business to Mylan for $5.3 Billion

After failing to ink a deal to acquire Swedish drug maker Meda in April, generic pharmaceutical company Mylan, Inc. (MYL) got its way to move its headquarters overseas, a move called a “tax inversion,” by striking an agreement with Abbott (ABT) on Monday. 

Per the deal, Mylan will acquire Abbott’s non-U.S. developed markets specialty and branded generics business in an all-stock transaction valued at $5.3 billion. The acquired assets, consisting of two manufacturing facilities, over 100 specialty and branded generic drugs and about 3,800 employees in more than 40 foreign countries, generated about $2 billion in sales last year.

Abbott will receive 105 million shares in a new combined company, which, based upon Mylan’s closing price of $50.20 on Friday, will give the Illinois-based company about a 21-percent stake in the new business. The newly formed company, which is slated to be a public entity, will combine Mylan’s existing business with Abbott’s developed markets pharmaceuticals business in Canada, Europe, Japan, Australia and New Zealand.

Abbott keeps all of its other branded generics operations in emerging markets and other businesses and products in developed markets. These operations generated about $2.9 billion in revenue in 2013. In total, Abbott did almost $22 billion in sales last year.

Abbott said that it doesn’t intend to be a long-term shareholder in Mylan, planning to redeploy the net proceeds from the transaction in the future for opportunities that would be accretive to earnings over time.

Following the completion of the transaction, expected for Q1 2015, Mylan sees approximately $10 billion in pro forma 2014 sales, adjusted EBITDA of approximately $3 billion, and a portfolio of more than 1,400 specialty and generic products. 

"We have been actively looking at a wide range of opportunities, and the acquisition of this business is absolutely the right next strategic transaction for Mylan as it builds on our strong momentum, expands and further diversifies our business in our largest markets outside of the U.S., and clearly positions Mylan for the next phase of growth through enhanced financial flexibility and a more competitive global tax structure,” said Mylan Executive Chairman Robert J. Coury in a statement today.

Pittsburgh-based Mylan plans to reincorporate in the Netherlands, a move that will significantly lower its taxes. The so-called tax inversion has been a hot topic lately as companies look to save cash by getting a new foreign address, including Minneapolis-based Medtronic (MDT) agreeing to buy Covidien ($COV) for $43 billion last month with the intention of re-domiciling in Ireland. As the Boston Globe noted, more than 40 US-based multinational companies have moved their headquarter abroad in the past 10 years, although keeping a large portion of their operations in the States.

Like it or not, tax inversions save companies a lot of money annually, but they also strips billions in taxes from the U.S. government. The option? Modify laws to be more supportive and incentivize companies to keep their headquarters in the U.S. – or even try to get other multinational firms to relocate here.

Also in the inversion space on Monday, Shire (SHPG) now expects its board to recommend an improved $53-billion takeover offer from AbbVie (ABBV) , a company spun-off Abbott last year. This amalgamation, which would leave Shire shareholders owning about 25 percent of the new company, would pave the way for Chicago-based AbbVie to save on taxes by relocating to Britain, where Shire is registered, or Ireland, where Shire is headquartered.

Shares of MYL are trading ahead by 2.7 percent in early action on Monday at $51.57, while shares of ABT have edged ahead 0.9 percent to $41.66.