Last checked at 
* Hedge funds' hit as Shire slumps
* AbbVie reconsiders its bid
* John Paulson and Paul Singer have stakes in Shire
By Sudip Kar-Gupta and Nishant Kumar
LONDON, Oct 15 (Reuters) - Some of the world's best knownhedge funds lost hundreds of millions of dollars in the valueof the stock they hold as Shire plunged after AbbVie's decision to reconsider its $55 billion bid for theBritish healthcare group.
Data from Britain's Financial Conduct Authority (FCA)regulatory body showed that no fund had a major "short" positionof more than 0.5 percent, indicating that most hedge funds wereconfident of the deal's success.
Billionaire hedge fund manager John Paulson's Paulson & Coalong with Elliott Management, the investment arm of hedge fundbillionaire Paul Singer, were among those that had built "long"positions after buying Shire shares.
Shire's value plunged more than 20 percent on Wednesday fromaround $49 billion to $39 billion, wiping around $500 millionfrom the value of Paulson's stake and $270 million off ElliottManagement's stake, according to Reuters calculations.
Chicago-based AbbVie was eager to buy Shire to reduce itsU.S. tax bill by moving its tax base to Britain.
"It seems Abbvie is getting cold feet due to changes in taxrules in U.S. and also perhaps ongoing correction in markets,"said Amit Jain, co-founder of hedge fund Amagis Capital thatheld bets on the deal going through.
The U.S. Treasury Department unveiled changes on Sept. 22 tothe rules for so-called corporate "inversions," which havebecome a cause of concern in Washington because of the threatposed to U.S. corporate income tax receipts.
Shire's shares fell 2.5 percent the day after the taxchanges were announced and the stock's latest slump has nowwiped $13 billion off its market capitalisation.
BOLD BETS LEAD TO 'ARBAGEDDON'
Paulson had been steadily building a long position on Shiresince June 23, when news of a potential deal first emerged.
By Oct. 10, he had became the second-largest shareholder inShire, owning 4.7 percent of the company, a stake worth 1.44billion pounds ($2.29 billion) as of Oct. 14.
Singer's Elliott Management had a 1.4 percent stake whileMagnetar Financial, whose strategies include "event-driven"trading such as takeover bid situations, had a 2.8 percentstake.
The hit to Shire's shares trended on Twitter under thebanner of 'Arbageddon', signifying how merger arbitrage fundswould have suffered from Shire's slump.
SteppenWolf Capital chief investment officer PhoebusTheologites said there was a high chance that specialist 'mergerarb' funds would have been burnt by the drop in Shire stock.
"That's the name of the game - you win some, you losesome. We discussed going long Shire last year, as a takeovertarget, and I nixed it on the basis that a macro fund has noplace trading specials or risk arbs," said Theologites.
One hedge fund with a position in Shire admitted beingcaught out by AbbVie's change of heart.
"We just don't know what's happened. One of these situationsthat is being held very closely. The tone from the AbbVie campsince the new U.S. rules has been very instructive up until now.They have been very keen to do the deal," said the hedge fundmanager, who declined to be named.
"So there is a disconnect between the tone so far and whatwe see today. Figuring to where that disconnect comes from iskey for us," added the hedge fund manager.
Nevertheless, in spite of Wednesday's setback some hedgefund managers still held out hope that a deal could be reached.
"The CEO of AbbVie has much at stake here, having so muchpushed for the deal regardless of the tax benefits, so he surelyhas a vested interest in making it happen," added another hedgefund manager, on condition of anonymity.
($1 = 0.6282 British Pounds) (Additional reporting by Alasdair Pal, Vikram Subhedar andAnjuli Davies; Editing by Elaine Hardcastle)
