| To: The Ox who wrote (3687) | 5/19/2014 4:06:34 PM | | From: Glenn Petersen | | | | The offer did seem excessive, though it would have allowed PFE to avoid paying U.S. taxes on $69 billion in profits that are parked overseas.
Pfizer reported $69 billion in foreign profits indefinitely reinvested overseas, and each year’s profits generate more cash. Acquiring a foreign company is a tax-efficient use of cash.
dealbook.nytimes.com
I also think that they may have been concerned about political blowback in the U.S. from a deal that was so obviously driven by tax considerations.
It will be interesting to see if PFE attempts to acquire another foreign based company before year end. |
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| From: Glenn Petersen | 5/19/2014 8:02:38 PM | | | | | | We need to either declare a tax amnesty or allow U.S. corporations to bring their cash onshore at reduced rates, assuming that it has already been taxed overseas.
U.S. Democrats to target companies moving overseas to dodge taxes
By Kevin Drawbaugh
WASHINGTON
Mon May 19, 2014 6:33pm EDT
WASHINGTON (Reuters) - Corporate tax-dodging deals known as inversions, in which a U.S. multinational shifts its tax domicile to a lower-tax country, would be restricted under legislation to be proposed in both houses of Congress by Democrats on Tuesday.
Representative Sander Levin and Senator Carl Levin, brothers from Michigan, will both propose bills, aides said.
Public hearings may follow, shining a light on the increasingly popular inversion strategy. But analysts said it was unlikely that legislation could win approval anytime soon with Congress deadlocked over fiscal policy.
"A fresh wave of deals could increase chances that a bill could move. But for now odds of enactment are well below 50 percent," said Greg Valliere, chief political strategist at the independent Potomac Research Group.
The Levin proposal could face opposition in the Republican-led House of Representatives, although Dave Camp, chairman of the tax-writing House Ways and Means Committee, has put forward proposals to end inversions.
"It is a real problem when the tax code provides an incentive for U.S-based companies to move overseas, often times taking good jobs with them," Camp said last month.
Two major inversion deals were launched recently. Both have stumbled. One was a possible combination of U.S. advertising firm Omnicom Group Inc ( OMC.N) with French rival Publicis Groupe SA ( PUBP.PA). That deal collapsed.
The other was U.S. drugmaker Pfizer Inc's ( PFE.N) pursuit of UK competitor AstraZeneca Plc ( AZN.L). That deal was thrown into doubt on Monday when AstraZeneca rejected Pfizer's latest offer.
Several smaller inversion transactions have succeeded. A Reuters review showed about 50 such deals have been done in the past 25 years, with half occurring since the 2008-2009 credit crisis abated.
U.S. drugstore chain Walgreen Co ( WAG.N) has been under pressure from some investors to do an inversion with European rival Alliance Boots Holdings Ltd ABN.UL, the Financial Times said. Walgreen bought a 45-percent stake in Alliance Boots in 2012, with an option to buy the rest in 2015.
While legal, inversions typically involve the acquisition by a U.S. company of a foreign company, then a restructuring allowing the U.S. company to be "reflagged" for tax purposes to the foreign company's home or elsewhere.
Both Omnicom and Pfizer proposed relocating their tax domiciles to Britain, which has a lower corporate income tax rate than the United States.
There are some restrictions on these deals, which erode the U.S. corporate tax base. President Barack Obama earlier this year proposed tightening the restrictions in his 2015 budget.
Separately, a private tax activist group said on Monday that major U.S. corporations are likely saving about $550 billion a year by holding nearly $2 trillion in profits overseas.
Urging Congress to take action, the left-leaning Citizens for Tax Justice, based in Washington, said the use of offshore tax havens by corporations is widespread and growing.
(Reporting by Kevin Drawbaugh; Editing by Howard Goller)
reuters.com |
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| From: Paul Senior | 6/4/2014 11:01:13 AM | | | | | | PL. Nice gain today in Protective Life for anybody who bet last week that the reported takeover rumor of PL was correct. (I didn't add to my position -- grateful though for the few shares I do have.)
finance.yahoo.com |
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| To: Glenn Petersen who wrote (3689) | 6/4/2014 11:24:17 PM | | From: Sr K | | | | A sign the author doesn't know what he's writing about:
- Separately, a private tax activist group said on Monday that major U.S. corporations are likely saving about $550 billion a year by holding nearly $2 trillion in profits overseas.
Is there such a thing as a public tax activist group?
If the statement were true and the applicable tax rate was 35%, is the author claiming that the "major U.S. corporations" are saving $550 billion a year on $700 billion not-yet-paid taxes? And if he doesn't know the difference between profits and capital, is he possibly biased? |
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| From: Cautious_Optimist | 6/9/2014 11:52:30 AM | | | | | | Looking at PPC losing the bidding war for Tyson... As their price takes a sizeable hit today:
Tyson is paying a high price for Hillshire due to a bidding; how does that affect Tyson's balance sheet competitively (I haven't studied that yet.) Was it a small victory for Pilgrims to bid them up so high?
PPC themselves looks like they could go from predator to prey. A tasty acquisition ("tastes like chicken?")
The second-largest chicken producer in the world. Protein is King, poultry has many advantages.
Digestible 6.8B market cap.
.81 price:sales
PE <12
Strong brand: I like the fact that they appear to care about the quality of their products.
JMHO |
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| To: Cautious_Optimist who wrote (3692) | 6/9/2014 12:56:34 PM | | From: The Ox | | | | Very tough business to be in, IMO.
Also, the stock has soared in the past 15 months from the $8 range. While the company looks real good on a price to cash flow basis, I go back to the tough business aspect and I am concerned at this level that the stock, as well as the industry is quite a bit ahead of itself.... At the same time, the possibility that PPC becomes attractive to another player is not out of the question!! |
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| To: The Ox who wrote (3693) | 6/9/2014 1:20:17 PM | | From: Cautious_Optimist | | | | PPC and the sector was undervalued. That was a pure value play, a different way to view a stock but not mutually exclusive as acquirers look at value-- plus synergy including competitive advantages and growth.
I am viewing PPC as an M&A candidate and strategic value.
Including the desires of foreign companies looking for synergistic strategic wedge into U.S. poultry markets.
Disclosure: My background and strength is telecom and enterprise B:B products; not meat. Looking mostly at the macro here, along with some ratios. |
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| From: Glenn Petersen | 6/13/2014 12:11:27 PM | | | | | | Hostile Takeover Bids for Big Firms Across Industries Make a Comeback
By DAVID GELLES
DealBook
New Yo0rk Times
June 12, 2014 8:25 pm
Endurance Specialty Holdings’ offer for Aspen Insurance Holdings in April did not get much attention from the broader business world.
But the takeover effort, now in its third month, pointed to a change on Wall Street today: Hostile deal making is back. Endurance, a Bermuda-based insurance group led by John R. Charman, tried to negotiate a friendly deal with Aspen. But after months of private approaches that Aspen rejected, Endurance went public in April with an unsolicited offer.
“We felt we didn’t have any other choice,” Endurance’s chief financial officer, Michael J. McGuire, said in an interview. “All along, we have been trying to engage in a friendly negotiated transaction. We were very committed to giving them an opportunity to engage in private. But at each stage of the game, they refused to engage at all.”
Now Endurance, which is waging a proxy fight to replace the Aspen board, has joined a list of prominent bidders making unwelcome offers for big companies across industries.
Pfizer’s $119 billion proposal to acquire AstraZeneca was unsolicited. Valeant Pharmaceuticals is waging a $53 billion hostile effort to take over Allergan. And several bidding wars have broken out over targets that never put up a “For Sale” sign.
“Boards are much more comfortable considering unilateral transactions,” said Jim Head, co-chief of mergers and acquisitions for the Americas at Morgan Stanley. “The reputational cost of doing it seems to be lower than it ever was.”
Hostile and unsolicited deal activity is up sharply this year, according to Thomson Reuters. Even excluding Pfizer’s withdrawn bid for AstraZeneca, nearly $100 billion in hostile offers have been made, accounting for 7 percent of global offer volume. That is the highest amount since the deal boom of 2007, and it is occurring as broader deal volumes are soaring.
One factor driving the increase in hostile activity is greater confidence in the boardroom. With the general economic outlook relatively stable, stock prices riding high and growth in the United States steady, executives are more willing to pursue acquisitions they have long considered.
Targets, however, are similarly bullish, making it easy to spurn suitors.
On Tuesday, Allergan formally rejected a $53 billion offer from Valeant Pharmaceuticals. In doing so, it said Valeant’s bid “substantially undervalues” the company, using a common phrase.
In January, Time Warner Cable said an acquisition proposal from Charter Communications “substantially undervalues” the company.
And in December, when Jos. A. Bank Clothiers rejected a bid from Men’s Wearhouse, it used the same phrase. “We continue to believe that your offer to acquire Jos. A. Bank substantially undervalues our company and that your proposal is not in the best interests of our stockholders,” the Jos. A. Bank board wrote in a letter to Men’s Wearhouse.
Such posturing is not always a successful defense, though it can drive up the price. In the case of Jos. A. Bank, the company was ultimately sold to Men’s Wearhouse. Charter Communications lost to Comcast, which ultimately agreed to acquire Time Warner Cable.
Changes in corporate governance have also made it easier for companies to make hostile bids.
Fewer companies have board members with staggered terms today, so shareholders can vote out an entire slate of directors at once if the directors are seen as entrenched. Poison pills, which prevent outside shareholders from attaining large positions, are less common. And the concentration of big company stock in the hands of a small number of large, institutional investors has made it easier for bidders to win shareholder support.
“Buyers are willing to assess jumping announced deals for prized assets, and the technology has made it easier,” Mr. Head of Morgan Stanley said.
The rise of shareholder activism has also been influential. In some ways, the threat of activists has replaced the threat of hostile deal making. Companies now prepare for activist investors as they once did for hostile bidders.
But signs suggest that activists and hostile bidders are willing to work together. William A. Ackman, the chief executive of the hedge fund Pershing Square Capital Management, is working with Valeant in its effort to acquire Allergan, setting a potential precedent for deals to come.
And with the increase in hostile activity, even private equity firms are being drawn into the fray. Kohlberg Kravis Roberts has made an unsolicited $3 billion offer for Treasury Wine Estates, an Australian vintner. Treasury rejected the offer, but its stock is up, signaling investors’ belief that KKR will raise its bid.
In some cases, unsolicited deals are leading to bidding wars. On Monday, Tyson prevailed over Pilgrim’s Pride in a bidding war for Hillshire Brands.
Early this year, Time Warner Cable resisted engaging in deal talks with Charter, but wound up striking a friendly deal with Comcast in February. Bidding wars this year have produced deals worth about $147 billion, the highest amount since before the financial crisis, according to Thomson Reuters.
Constraints on hostile deal making remain. Such efforts require a commitment of resources and the willingness to engage in a war of words with a reluctant target, all without any guarantee of success.
“It has never been something that anyone does lightly,” said Antonio Weiss, Lazard’s global head of investment banking. “You cannot try on a hostile bid and see how it goes.”
The tough regulatory environment may also be playing a role in limiting the number of hostile deals. Many hostile deals are horizontal mergers, with competitors taking over one another. Such deals often face scrutiny from antitrust regulators, making a hostile approach that much riskier.
“You’re exposing your strategy to the public without knowing you can carry through with it,” Mr. Weiss said.
Nonetheless, investment bankers predict an increase in hostile activity.
“This should be the easiest time on earth to win a hostile,” said one senior banker who declined to be named because he was involved in several hostile deals.
In the case of Endurance, the company said it was willing to follow through with efforts to replace the Aspen board if necessary. “We’re not shy about driving hard to deliver shareholder value,” Mr. McGuire said.
dealbook.nytimes.com |
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| From: Glenn Petersen | 6/16/2014 1:37:07 PM | | | | | | Yet the crucial reason appears to be taxes. Medtronic would reincorporate in Ireland but maintain its headquarters in Minneapolis. Such an inversion would allow it to be treated as a foreign company after the transaction. The move would lower Medtronic’s tax rate and, perhaps more important, allow the company to access its $12 billion in cash held abroad without paying United States taxes.
A Merger in a Race With Congress
By STEVEN M. DAVIDOFF
DealBook
New York Times
June 16, 2014 1:03 pm
Why does Medtronic want Covidien?
A number of reasons for the proposed $42. 9 billion acquisition have been cited, including offering a more “compelling portfolio of offerings,” whatever that means.
Yet the crucial reason appears to be taxes. Medtronic would reincorporate in Ireland but maintain its headquarters in Minneapolis. Such an inversion would allow it to be treated as a foreign company after the transaction. The move would lower Medtronic’s tax rate and, perhaps more important, allow the company to access its $12 billion in cash held abroad without paying United States taxes.
If you read through the offering document for this deal, you will learn that like Pfizer’s bid for Astra Zeneca, this deal is built on the inversion tax loophole. Indeed, the deal will collapse if Congress chooses to do something about inversions.
The reason is that Medtronic and Covidien carefully negotiated that Medtronic would obtain the inversion tax treatment it wanted as part of moving abroad. If the inversion rules are changed, the deal can be terminated by either party. The exact wording in the offer document is as follows and is phrased as a condition:
there shall have been no change in applicable Law . . . . with respect to Section 7874 of the Code (or any other U.S. Tax Law), or official interpretation thereof as set forth in published guidance by the IRS . . . . and there shall have been no bill that would implement such a change which has been passed in identical . . . form by both the United States House of Representatives and the United States Senate and for which the time period for the President of the United States to sign or veto such bill has not yet elapsed, in each case, that, once effective. . . . would cause New Medtronic to be treated as a United States domestic corporation for United States federal income tax purposes; This is careful legal language and basically says that as a condition to completion of the deal, Medtronic has to get its tax inversion and become a foreign corporation for tax purposes. For those of you who haven’t memorized the tax code, Section 7874 of the tax code is – you guessed it – the rules relating to inversions. Translating this language, the condition basically says that one of two things can block this deal. The first thing is if the Internal Revenue Service changes its interpretation of Section 7874 to deny Medtronic the use of this loophole.
The second deal killer is if the House and Senate can agree on a bill that changes the inversion rules. In both cases, the condition is set off if the combined companies can’t escape domestic tax laws in the United States and be treated as a foreign corporation, freeing up Medtronic’s cash.
So it goes. There is a bill in Congress to change the inversion rules that would definitely trigger this condition. Senator Carl Levin, Democrat of Michigan, has introduced the Stop Corporate Inversions Act of 2014. The bill would halt corporate inversions by amending Section 7484 to require that foreign shareholders own 50 percent of the new company instead of the current 20 percent. The bill would also stop corporate inversions if the “company remains in the U.S. and either 25 percent of its employees or sales or assets are located in the U.S.” Medtronic certainly has more than 25 percent of its employees, sales and assets in the United States.
The race is on. Medtronic and Covidien have said that they expect the deal to close by the end of 2014 or early 2015. Will Congress or the I.R.S. act definitively before then?
In the meantime, there is the outcry that Medtronic is moving abroad to avoid United States taxes. Medtronic is offering a sop to Washington by saying it will spend $10 billion on technology investment in the next 10 years in the United States. It’s a loser’s prize, but who can really blame Medtronic for trying to leave and save a few billion dollars?
The United States tax laws are a mess, and too many companies are sitting on trapped cash abroad. The fact that Apple is borrowing money to fund a $100 billion payout to shareholders when it has a cash hoard exceeding $150 billion is clear evidence that the tax laws are creating a bizarre world. According to Moody’s, $1.64 trillion is being held abroad by American companies.
With this absurdity, something has to give. The spate of inversions is only one sign. A tax holiday to bring the cash back is also inevitable. There is too much money on the table. Senator Harry Reid, the Senate majority leader, is proposing a tax holiday to fix a $10 billion hole in the highway trust fund. This would be the second tax holiday to deal with this problem – the first was in 2004 and companies brought back $312 billion in cash.
Instead of tinkering by either changing the inversion rules or enacting a tax holiday, perhaps it is time for Congress to retool the tax laws for the global age and recognize that the long arm of American tax laws maybe shouldn’t reach as far as they do. For those who disagree, then Congress should perhaps figure out a better approach to this trapped cash, even if the tax laws do extend abroad to capture this income. We live in a global world, but the tax laws haven’t caught up.
Unfortunately, a debate over taxes of this nature is a third rail and likely to be caught up in all of the tax-cutting mania on the Hill these days, mixed with a dose of nationalism. Instead, Congress seems to prefer stop-gap measures in the form of Mr. Reid’s or Mr. Levin’s proposal or another flavor of the month.
The fate of the Medtronic-Covidien deal hangs on Congress and whether lawmakers, which typically can’t get their act together these days, decide to act. Medtronic is acting on the conventional wisdom by betting against Congress. We’ll see if it is right.
Steven M. Davidoff, a professor at the Michael E. Moritz College of Law at Ohio State University, is the author of “ Gods at War: Shotgun Takeovers, Government by Deal and the Private Equity Implosion.” E-mail: dealprof@nytimes.com | Twitter: @StevenDavidoff
dealbook.nytimes.com
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| To: Glenn Petersen who wrote (3696) | 6/16/2014 1:50:28 PM | | From: The Ox | | | | Congress writes laws with loophole after loophole, then they get incredulous when companies use them to save money. All of a sudden, when a large company does this to save millions or billions of dollars, it's suddenly "un-American".
Write a decent tax law structure and we can stop all the pettiness and finger pointing, IMO. |
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