AstraZeneca shares fall as Obama thwarts tax inversion deals

Shares in AstraZeneca and other potential takeover targets for US companies fell after the Obama administration announced measures to thwart tax-driven acquisitions of foreign companies.

AstraZeneca was the subject of an acrimonious takeover approach by Pfizer earlier this year. The US company targeted AstraZeneca partly to move its headquarters to Britain and exploit the UK’s lower corporation tax rate. AstraZeneca rejected Pfizer’s overtures but the US firm kept its options open to make a second approach.

Moving headquarters for tax reasons, known as a “tax inversion”, has proved politically contentious in the US as companies have lined up to find takeovers in lower tax regimes, particularly the UK and Ireland. The US rate of corporate tax is 35% whereas the UK, under reductions ordered by the chancellor, charges 21%, falling to 20% next year.

Pfizer’s approach for AstraZeneca raised the political heat in the US over inversions, which are seen as largely artificial manoeuvres that leave day-to-day operations unchanged. The tactic became a test of White House resolve after Burger King agreed to buy smaller Canadian fast-food chain Tim Hortons last month to shift its headquarters to Canada.

After failing to agree legislation with Congress, the Obama administration said on Monday that companies would no longer escape tax on US earnings by using internal loans, dividends and share swaps to restructure under foreign ownership. The changes will not apply to completed deals but are intended to deter further attempts to use what Jack Lew, the Treasury secretary, called an “unfair loophole”.

AstraZeneca shares fell more than 5% as investors decided the White House’s move had made a further Pfizer bid less likely. Shares in Shire Pharmaceutical, which has agreed to be bought by AbbVie of the US, fell more than 6%. Smith & Nephew, also the subject of US bid speculation, fell 3%. Intercontinental Hotels, which has faced pressure from a hedge fund to agree to a tax inversion deal, dropped 1.7%.

The Obama administration also hopes its measures will make it more difficult for US multinationals to avoid tax by parking earnings abroad without relocating their headquarters. Apple and Amazon have faced criticism for booking billions of dollars of revenues in overseas jurisdictions.