Chicago-area AbbVie Inc. employees worried about job security after the pharmaceutical firm’s planned $55 billion merger with fellow drugmaker Shire PLC have been told not to fret.
That’s the same signal employees at Aon PLC were sent more than two years ago when the insurance brokerage company announced plans to move its headquarters from Chicago to London.
North Chicago-based AbbVie plans to relocate the new company’s corporate headquarters to the British Island of Jersey, where Shire is based, to take advantage of tax benefits if shareholders and regulators approve the deal.
The companies said Friday they will create a new company that will be controlled by shareholders of North Chicago-based AbbVie, who will own about 75 percent of the new company’s stock.
Shire shareholders will receive cash and stock valued at about $91.07 for each of their shares. They will then hold the remaining 25 percent stake in the new company.
Combined, AbbVie and Shire would rank ninth worldwide in prescription drug sales, according to The Wall Street Journal. The companies expect the deal to close in the fourth quarter.
Despite the move of the corporate headquarters, AbbVie has told its employees it is “committed to keeping our operational headquarters in Lake County . . . there will be no impact on jobs in Lake County.”
AbbVie employs more than 8,000 people in the northern suburbs.
Aon employed roughly 6,600 people in the Chicago area in 2012, including about 2,000 at its former downtown international headquarters. The company now calls Chicago home of its headquarters for the Americas and today employs 7,700 people in the area.
When announcing its headquarters move, Aon said it was doing so to take better advantage of the strategic proximity to Lloyd’s and the London market and gain greater access to emerging markets.
But the main driver was a reduced tax rate, said Morningstar Inc. analyst Vincent Lui. Since the relocation, Aon’s tax rate has fallen by about a third, from 28 percent in the second quarter of 2012 to 18.9 percent in the first quarter of this year, according to company releases.
At 35 percent, the United States has the highest corporate income tax rate in the industrialized world, and it also taxes income that is earned in another country and then brought home. That causes some companies to park millions of dollars in overseas accounts.
“Companies like ours need access to our global cash flows,” AbbVie Chairman and CEO Richard A. Gonzalez told analysts on Friday, adding that they need to invest globally and in the United States.
AbbVie has said its headquarters move would drop its tax rate to about 13 percent by 2016. That would be down from the roughly 22 percent rate it has forecast for 2014 — a more-than-40-percent reduction.
More than half of AbbVie’s $4.56 billion in first-quarter sales came from its drug Humira, used to treat rheumatoid arthritis and other diseases. The company has said merging with Shire would create strategic benefits.
“By combining AbbVie and Shire, we’re creating a unique, diversified biopharmaceutical company,” Gonzalez said in a statement announcing the merger deal Friday. “The combined company would benefit from a best-in-class product development platform, a stronger pipeline and more enhanced R&D capabilities.”
AbbVie’s pursuit of Shire highlights AbbVie’s “intention to diversify its business and . . . provide flexibility for U.S. business development,” Barclays said in a research note. Strategically, AbbVie would acquire Shire’s “quality growth assets in platforms including rare diseases, neuroscience and ophthalmology, easing investor concerns about over-reliance on Humira and offering future growth opportunities.”
Morningstar analyst Damien Conover said in a research note Friday the acquisition “would probably strengthen the firm’s competitive positioning.”
He doesn’t expect the merger to prompt significant job cuts.
“I think they’ll probably look for some cost synergies, but when I look at the two businesses, this is not a deal that in my view has a lot of opportunity to cut costs because of overlap, because the businesses are fairly different,” he told the Sun-Times.
“A more important aspect of the deal is the tax inversion benefit,” Barclays Research said, referring to the legal maneuver in which U.S. companies buy overseas companies and swap their headquarters and taxing locale to gain a lower tax rate.
“Tax inversion by redomiciling . . . will provide an estimated $1.3 billion tax savings by 2020 based on our estimates,” Barclays wrote. “We expect the majority of the tax savings to be realized within the first two years.”