(Reuters) – Abbott (NYSE:ABT) and Mylan (NSDQ:MYL) today said they would go ahead with their $5.3 billion deal in which Mylan will buy part of Abbott’s overseas generics business and set up headquarters in the Netherlands, but they tweaked the terms of the transaction.
The move comes after the U.S. Treasury on Sept. 22 made changes to the corporate tax rules that govern such "inversion" merger deals, in which companies move their operations to countries with lower taxes than in the United States. The new rules raise the bar for this tax treatment and also make it harder to reap other tax benefits of an inversion.
About 10 U.S. companies had deals in the works when the Treasury changed the rules. Some, including Salix Pharmaceuticals and former Abbott business Abbvie, pulled out of their own inversion-based deals, while others decided to go forward with their deals.
Investors and analysts were not certain where Abbott and Mylan would fall.
"The positive takeaway is that Abbott still plans to close its deal with Mylan in the first quarter of 2015, despite the pressure on inversions from the U.S. Treasury, and some walking away by other companies from inversions," said Jeff Windau, an analyst with Edward Jones. "The [tax law] changes from Treasury are making people re-look at deal terms, and deals are not as favorable now. That’s what happened here, there had to be some tweaks."
Abbott plans to sell to Mylan its generics business in developed markets outside the United States. It plans to keep its generic brands in fast-growing emerging markets.
Mylan said that the terms of the deal were changed to include better pricing terms for Mylan at Abbott units that will manufacture and supply products for Mylan. It also said that Mylan will issue 110 million shares in the newly formed company to Abbott, 5 million more than the original terms dictated.
Mylan shareholders will own 78 percent of the company and Abbott will own 22 percent of the new company. Mylan said the deal would be accretive.
Abbott has said it plans to quickly sell the shares after the closing of the deal.
Abbott also said its 3rd-quarter sales were in line with Wall Street forecasts, reporting that sales from continuing and discontinued operations rose 4.7% to $5.6 billion – including the generic medicines to be sold to Mylan, now considered discontinued products.