Health-care issues fall with new rules

Health-care stocks fell en masse in the United States and Europe after the U.S. government put out rules designed at blocking the cross-border tax-reducing deals that have helped drive a record period of industry mergers - and rewarded investors.

The deals have been led by U.S. companies seeking to avoid the developed world's highest corporate tax rate by buying foreign businesses and moving their tax address abroad. The U.S. Treasury rules, released Monday night, seek to slow or halt those transactions, or at least make them less profitable, as a way of keeping the companies headquartered in the United States.

Pfizer Inc., which this year attempted to buy AstraZeneca P.L.C. and move abroad, fell less than 1 percent to $30.05 at the close in New York. Both companies have operations in the Philadelphia region.

"Clearly the prospects for an inversion transaction are now less likely," Alex Arfaei, a New York-based analyst at BMO Capital Markets, said of Pfizer in a note to clients Tuesday.

To execute a so-called tax inversion, U.S. companies need to buy a foreign operation, and the shareholders of the non-U.S. company need to make up at least 20 percent of the combined operation. Shares of companies that would benefit from the moves, or already have struck but not completed deals to do so, fell.

Companies potentially affected were still sorting out what the new rules might mean, but that group goes beyond health care.

Burger King Worldwide Inc.'s deal to buy Tim Hortons Inc. and move its address to Canada will proceed. Scott Bonikowsky, a Tim Hortons spokesman, said the deal is "moving forward as planned," and is driven by long-term growth and not tax benefits.

Still, pharmaceutical companies have led the way in a period of tax-inversion deals that have caught the eye of U.S. policy makers. Eight inversion deals are pending, five of which are drug or medical device deals, according to data compiled by Bloomberg. Three more such deals were completed this year in the industry.

AbbVie Inc., based in North Chicago, Ill., has agreed to buy Shire P.L.C. and move to the United Kingdom, while keeping its operational headquarters in Chicago. Its shares fell 2 percent to $57.56 in New York, while Shire dropped 2.5 percent. Shire is registered in the Channel Islands and has its official headquarters in Dublin, but its leaders work from the United States, including the Philadelphia suburbs.

Auxilium Pharmaceuticals, which is headquartered in Chesterbrook, is working toward completing the takeover of Canada-based QLT Inc. A spokeswoman for Auxilium did not respond to an e-mail request for comment. Auxilium, meanwhile, has rejected an unsolicited takeover bid from Endo International, which operates from Malvern but officially moved its headquarters to Dublin this year after a separate acquisition.

Medtronic Inc., which plans to buy Covidien P.L.C. and move its legal address to Ireland from Minneapolis, fell 2.9 percent to $64.08. Covidien shares fell 2.5 percent to $88.11.

Part of the new rules would restrict inverted companies from taking loans from their foreign subsidiaries without paying U.S. taxes. This could particularly affect Medtronic, which has about $13.9 billion in cash and equivalents outside the U.S., the most among the eight companies with pending inversion deals.

Smith & Nephew P.L.C., a British maker of artificial hips and knees that had been a potential target for Stryker Corp. of Kalamazoo, Mich., fell 2.8 percent. Pittsburgh-based Mylan Inc., which has a deal to acquire Abbott Laboratories' generic drugs unit, rose less than 1 percent to $46.61.