By Carla Mozee, MarketWatch
LONDON (MarketWatch) -- Shares of Shire PLC and AstraZeneca PLC
were under pressure Tuesday, as tax-inversion moves by the U.S.
dimmed merger prospects for the pharmaceutical companies.
Tax toll: AstraZeneca lost 3.6% and Shire dropped 2.5%, after
the U.S. Treasury on Monday issued new rules under the country's
tax code, aimed at making so-called inversion deals more difficult
to carry through and less profitable for the companies
involved.
Under an inversion, a U.S. company reincorporates abroad to
avoid U.S. taxes. The U.K. and Ireland have more lenient corporate
tax rates than the U.S. In July, U.S. drug maker AbbVie Inc. (ABBV)
agreed to buy Irish biopharmaceutical firm Shire, while British
heavyweight AstraZeneca has been fighting off a hostile takeover
from U.S.-based Pfizer Inc. (PFE).
Panmure Gordon's senior U.K. economist Simon French told clients
Tuesday they "remain bullish for consolidation in this sector that
stands to benefit from a rapidly aging population and a government
that has fostered an accommodating corporation tax regime."
A deal in the U.S. Congress on tax simplification would appear
unlikely in an increasingly hostile environment leading up to and
beyond the midterm elections in November, French said. Inversion
opportunities haven't vanished, but they must adapt to a more
hostile political backdrop, he added.
The U.K.'s FTSE 100 fell 1.4%, dropping alongside European
markets after lackluster eurozone economic data.
Movers: Tesco shares fell 4.2% and closed below 2 pounds each
($3.28) for the first time in more than 11 years. That lopped more
than GBP690 million off the supermarket chain's stock-market value.
On Monday, the shares tumbled nearly 12% after the U.K.'s largest
retailer unveiled an accounting error that massively reduced its
full-year profit outlook.
"We think top management and the company as a whole could
struggle to wholly focused on day to day business in the coming
months and hence expect further deterioration in [like-for-like
sales] and market share trends," said Société Générale Cross Asset
Research in a note.
But Carnival PLC was among benchmark's few advancers, with
shares rising 0.3% after the British-American cruise ship operator
raised its yearly outlook as quarterly earnings surged more than
30%.
Off the FTSE 100, shares of Tate & Lyle PLC sank 17% as the
food ingredients maker cut its profit outlook for the second time
this year, in part after a harsh winter in the U.S. hurt its
business.
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