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* AbbVie says it is reconsidering backing for deal
* Shire shares down 23 percent
* AbbVie board to meet on Oct. 20
* Deal was partly motivated by tax benefits
* Shire urges AbbVie to stick to original plan (Adds analyst comment, Shire waiving 3-day notification, addsNEW YORK to dateline)
By Paul Sandle and Ransdell Pierson
LONDON/NEW YORK, Oct 15 (Reuters) - U.S. pharmaceuticalcompany AbbVie said it was reconsidering its $55billion takeover of Shire in the wake of U.S. governmentmoves to curb deals designed to cut taxes, wiping as much as $13billion off the London-listed firm's stock price.
Chicago-based AbbVie said late on Tuesday it was respondingto the U.S. proposals which aim to make it harder for Americanfirms to shift their tax bases out of the country and into lowercost jurisdictions in Europe.
AbbVie's move for Shire, a leader in drugs to treatattention deficit disorder and rare diseases, was announced inJuly amid a spate of similar takeover deals in thepharmaceutical sector.
It proposed creating a new U.S.-listed holding company witha tax domicile in Britain, which applies low tax rates to patentincome and has passed laws that make it easy for companies toshift profits into tax havens.
The news hammered shares in Shire, sending them down 23percent, to where they were before the deal talks emerged inJune.
Shares in larger rival AstraZeneca, which hadrebuffed a $118 billion takeover bid from U.S. drugmaker PfizerInc, fell 2.9 percent.
AbbVie said its board will meet on Monday to consider theimpact of the U.S. Department of Treasury's proposed unilateralchanges to tax regulations announced last month, and to alsoconsider whether to withdraw or modify its recommendation on theShire deal.
Shire urged AbbVie to push ahead, pointing out that the U.S.drugmaker might have to pay a breakup fee of $1.64 billion wereit to renege on its recommendation for the deal to shareholders.
"The board of Shire believes that AbbVie should proceed withthe recommended offer on the agreed terms," Shire said in astatement. And the British drugmaker waived a requirement thatAbbVie give it three business days' notice before holding theboard meeting.
AbbVie's second thoughts on the deal surprised Shireinvestors, coming just weeks after AbbVie chief executiveRichard Gonzalez, in the wake of the Treasury proposals, toldemployees of both companies he was "more energized than ever"about the transaction.
Moreover, tax advisers had said the Treasury measures wereunlikely to significantly impact most inversion deals.
By domiciling the combined group in Britain, AbbVie would beable to cut its 22 percent tax rate to about 13 percent for thenew company. Besides the tax advantage, Gonzalez said AbbVie wasattracted to Shire's portfolio of lucrative drugs to treat rarediseases and other medicines in development.
Buying Shire would also reduce AbbVie's reliance onarthritis treatment Humira, the world's top selling medicine,whose $13 billion in annual sales accounts for more than 60percent of company revenue. Although Humira's U.S. patent lapsesin 2016, AbbVie hopes it will take years for rivals to developgeneric formulations.
POLITICAL HEAT
The number of tax-inversion deals, particularly inhealthcare, have surged in the past year, putting pressure onthe Obama administration to clamp down on corporate deals aimedat lowering tax bills.
The U.S. Treasury proposed changes to tax regulations thatwould limit tax inversion, including a prohibition on"hopscotch" loans, which allow U.S. companies to access foreigncash without paying tax in the United States.
Cenkos analyst Navid Malik said AbbVie, by calling for theboard meeting, could be playing "hardball" to win better dealterms.
"They could have put this out to try and get Shire back tothe table to potentially renegotiate, but I don't think thatwill happen," he said.
AbbVie, by walking away from Shire, would run the risk offinding itself a takeover target by a foreign acquirer with acost-cutting bent, such as Valeant Pharmaceuticals International, said Sanford Bernstein analyst Ronny Gal.
BMO Capital Markets analyst Alex Arfaei maintained his"Outperform" rating on AbbVie, saying it could shrug off thehefty breakup fee if positive trends for the company are seenthis year - including the launch of a hepatitis C drug andfavorable data from trials of potential blockbuster treatmentsfor endometriosis and cancer.
Pfizer abandoned its bid for AstraZeneca in May after itsoffer was rejected but, under UK takeover rules, can makeanother run at its British rival in late November.
Many analysts have speculated Pfizer might indeedre-approach AstraZeneca with a higher bid, in hopes of locatingthe combined company in tax-friendlier Britain.
But Credit Suisse analyst Vamil Divan late on Tuesday saidAbbVie's reconsideration of the Shire deal, presumably motivatedin part by potential U.S. roadblocks for tax inversions, coulddampen Pfizer's interest in AstraZeneca.
HEDGE FUNDS BURNT
Some of the world's top hedge fund managers, who had beenbuilding up "long" positions betting on future share price gainsat Shire due to AbbVie's bid interest, faced getting burnt byAbbVie's decision.
Data from Britain's Financial Conduct Authority (FCA) showedthat no fund had a major "short" position of more than 0.5percent that marked a bet on Shire's shares falling in future.
"We just don't know what's happened," said one hedge fundmanager, who declined to be named.
(Writing by Kate Holton; Additional reporting by Sarah Young,Anjuli Davies and Sudip Kar Gupta; Editing by Anna Willard,Giles Elgood and Gunna Dickson)
