New York: Tax inversions aren’t dead yet.
The US Treasury Department took steps in September to make it harder for American companies to pursue overseas mergers that move their legal addresses abroad and produce tax benefits. The new rules put a damper on the practice and led drugmaker AbbVie Inc to scrap its more than $50 billion deal for Shire Plc.
Even so, the door isn’t shut entirely.
Just this week, in a deal that was largely upstaged by bigger M&A news in the cable and drug industries, US telecommunications equipment maker Arris Group Inc agreed to buy British set-top box maker Pace Plc for about $2.1 billion and become a UK company. While the transaction will be affected by the Treasury’s rules, it will be highly accretive and reduce Arris’ tax rate. Shares of Arris surged 22 per cent.
The deal “will signal to people that, ‘Hey, the Treasury notice didn’t really end the game here and it’s still a worthwhile thing to do,’” Robert Willens, a New York-based independent consultant on corporate taxes, said by phone. “It’s not going to be an isolated event.”
Most of the inversions going forward will probably continue to be similar to the Arris-Pace merger: relatively small and involving two companies that aren’t major household names. Deals like that have a better shot at getting done without triggering the same political alarm that surrounded bigger transactions such as Pfizer Inc’s failed attempt last year to buy AstraZeneca Plc for more than $100 billion.
The inversions announced since AbbVie and Shire’s merger went bust have been valued at less than $2 billion on average, according to data compiled by Bloomberg. These have included Steris Corp.’s merger with Synergy Health Plc and Wright Medical Group Inc’s combination with Tornier NV, both of which are still pending.
