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Tax M&A: Mylan Goes Dutch With Abbott Unit

The push for U.S. companies to move overseas kept investors busy Monday as Mylan agreed to buy part of Abbott Laboratories' generic-drug business and relocate to the Netherlands. Mean while, Abbott's former proprietary-drug unit AbbVie closed in on a deal for Anglo-Irish Shire Pharmaceuticals with its fifth offer.

Abbott (ABT) will keep its branded generics business in emerging markets, but Mylan (MYL) will acquire the portion that operates in developed markets, namely Europe, Canada, Japan, Australia and New Zealand. (This business does not exist in the U.S., though Abbott is based near Chicago.) Mylan will give Abbott 105 million shares of the combined company. That's $5.3 billion based on Mylan's Friday closing price.

Mylan said this will add nearly $2 billion to its annual revenue, which currently is running near $7 billion, and add 25 cents to EPS in the first year. The new company will be domiciled in the Netherlands, which Mylan says will lower its tax rate from 25% to 20%-21% in the first year, and to the high teens thereafter. But management will stay in Pittsburgh.

Mylan said the buyout will widen its geographic reach, bring in 2,000 salespeople and add a significant number of products. Those treatments will include testosterone replacement Androgel, flu vaccine Influvac, and Brufen, the original ibuprofen brand.

Leerink analyst Jason Gerberry wrote in a research note that there isn't much overlap between the two firms' products, which likely means little cutting. He also noted that the move abroad will likely make future M&A easier, including deals to lower taxes even further.

Abbott will end up owning 21% of the new company, but CEO Miles White said on a conference call Monday that those shares will be sold fairly quickly. For Abbott, White said, the sale of the unit will help it focus more on emerging markets, where branded generics are a fast-growing business.

Abbott's stock rose 1% to 41.82. Mylan climbed 2% to 51.24.

Earlier on Monday, Shire (SHPG) revealed that it started talking over the weekend with AbbVie (ABBV), which Abbott spun off at the start of 2013. Shire had given AbbVie the cold shoulder as it bid four times over the last two months, but it said it's hammering out the details of a new offer that amounts to nearly $54 billion. Shire shareholders would get 25% of the merged entity.

AbbVie would be able to redomicile in lower-tax Britain. Shire is based in Ireland but registered in the U.K. AbbVie shares fell 11 cents to 54.85. Shire rose 2% to 254.27.

With all the tax-inversion activity, JPMorgan analyst Michael Weinstein asked White on the call if he was thinking of making that kind of a deal. White said he didn't feel an enormous need to do one, but he said the companies that do so aren't tax dodgers.

"When a company inverts, it still pays the same taxes in the United States that it paid before," White said. "It still pays the same taxes internationally that it paid before. The single biggest change is that a company and its shareholders have access to cash overseas upon which they've already paid taxes ... I think the attention that inversion is getting is turning a spotlight on the U.S. tax structure relative to the rest of the world, as it should."