These sell-offs were triggered by overnight news that the US government is clamping down on so-called tax inversion deals, by which US companies reduce their tax rate by taking over foreign companies.
The news appears to threaten the success of Shires takeover deal with US pharma firm AbbVie and makes a repeat bid for AstraZeneca from Pfizer seem more unlikely.
The US Treasury Department has announced new rules, which apply from today, making it harder for US firms to move their tax bases abroad.
The rules are fairly technical, but are intended to restrict the ability of American companies to move cash and profits abroad without paying US taxes.
Will the Shire deal still happen?
Shires share price fell by nearly 6% to just over 49 this morning, signalling investors concern that the AbbVie takeover might not go through. Neither company has commented on the new rules yet, so we dont know if AbbVie is planning to reconsider its offer.
However, todays fall in Shires share price means that the firms current market value is almost 10% below the agreed deal valuation, suggesting that the market sees a real risk the AbbVie deal could fail.
Will Pfizer abandon AstraZeneca?
Pfizers chief executive Ian Read was open about the fact that tax inversion was an important element of his companys desire to takeover AstraZeneca.
AstraZenecas share price has remained high despite the failure of the Pfizer bid, partly because investors have been hoping that Pfizer will try again later this year.
In my view, the new rules on tax inversion deals make a repeat bid from Pfizer less likely, but not impossible: companies such as Pfizer may look at the new rules in detail and calculate their precise impact, before making a final decision.
Is either company a buy?
After todays falls, AstraZeneca shares are about 10% higher than they were before the Pfizer bid, giving the firm a 2015 forecast P/E of around 17.5, with a prospective yield of around 3.9%.
Shire looks more expensive: with a 2015 forecast P/E of 23 and a prospective yield of just 0.4%, I can see no reason for buying, except as a gamble that the AbbVie bid will go through at its original valuation.
Overall, I rate both companies as a hold, and believe there are better buying opportunities elsewhere, especially if, like me, you are focused on companies with the potential to outperform the wider market.
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Roland does not own shares in any company mentioned.