(FROM THE WALL STREET JOURNAL 8/7/15)
By Shayndi Raice and Dana Mattioli
Companies continue to leave the U.S. through inversion deals,
nearly a year after the Treasury Department clamped down on the
tax-fueled mergers.
Two U.S. companies Thursday announced plans to move overseas
through inversions, bringing the year's tally of proposed
inversions to six. A total of 10 inversions, which allow firms to
lower their corporate tax rates by buying foreign targets, were
done in 2014, according to data provider Dealogic.
CF Industries Holdings Inc., a Deerfield, Ill.-based fertilizer
maker, said it would merge with parts of Netherlands-based OCI NV
in a deal valued at $6 billion as well as the assumption of $2
billion in debt. Atlanta-based Coca-Cola Enterprises Inc.,
meanwhile, announced a three-way merger of European bottling
operations to create a company with $12 billion in sales.
Both companies will set up new headquarters in the U.K., where
the corporate tax rate is around 20%, compared with about 35% in
the U.S.
The Treasury Department's assault on inversions last September
largely ended a deal-making wave that featured high-profile U.S.
companies such as pharmaceutical giant Mylan NV and fast-food chain
Burger King Corp. Yet a number of companies have quietly continued
to reach smaller inversion deals in industries less likely to
attract attention from lawmakers or the U.S. public.
"I think there was some caution around the optics of a large,
well-known U.S. company moving to a new domicile and the perception
that it was being done as a 'tax dodge,' " said Robert Katz, a
partner in Shearman & Sterling LLP's mergers and acquisitions
group.
The Treasury's new guidelines made it harder for companies to
access overseas cash without having it taxed at U.S. rates, and
they tightened the standards for a merger to qualify as an
inversion.
While inversion announcements came in quick succession last
year, especially among pharmaceutical companies that have large
amounts of cash parked overseas, high-profile deals largely dried
up late last year and into 2015.
The Treasury's efforts also led to the collapse of some pending
inversions, including U.S. pharmaceutical giant AbbVie Inc.'s $54
billion purchase of Ireland's Shire PLC.
But Thursday's announcements show that some U.S. companies are
still interested in the deal structure. The difference this time,
experts say, is the lower-profile nature of the companies making
the moves.
Despite the Treasury guidelines, inversions are still
beneficial, lawyers say, even though the tax benefits of the deal
may not be as big as they would have been under the old rules.
Other U.S. firms that have announced inversions this year
include telecommunications equipment manufacturer Arris Group Inc.,
medical-device company Cyberonics Inc. and pharmaceutical company
Pozen Inc., according to Dealogic.
Those deals stand in contrast to Pfizer Inc.'s unsuccessful
attempt to move to the U.K. through a $120 billion purchase of
rival AstraZeneca PLC or Burger King's move to Canada through its
merger with Tim Hortons. That deal drew the ire of some U.S.
lawmakers and consumers.
Still, U.S. corporate giants haven't completely abandoned the
inversion. Monsanto Co., the St. Louis-based agricultural firm, is
pursuing a $45 billion takeover of Swiss rival Syngenta AG.
Monsanto has a strong overseas presence.
The Coca-Cola bottling deal could resolve a historical quirk has
kept the headquarters of the European bottling operations in the
U.S.
The deal, which will combine Atlanta-based Coca-Cola Enterprises
with Coca-Cola Iberian Partners and Germany's Coca-Cola
Erfrischungsgetranke AG, is part of a broader move by the U.S. soda
giant to consolidate its bottlers around the world and lower
costs.
"This is not even remotely a tax-driven transaction. It's a
strategic and operational transaction," John Brock, Coca-Cola
Enterprises' chief executive, said.
For its part, CF Industries said its deal for parts of OCI
offers expansion prospects overseas.
"I would view this as a combination with great industrial
logic," said CF Industries CEO Tony Will.
-- Ilan Brat and Mike Esterl
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