| To: richardred who wrote (3729) | 8/7/2014 3:25:19 PM | | From: Glenn Petersen | | | | So, rather than structure the corporate tax code to provide companies with an incentive not to redomesticate overseas, we have decided to hit them with a blunt instrument. Using the threat of the IRS is simply thuggish. Both parties are at fault for not addressing this issue.
Walgreen becomes government whipping boy
By Jeff Macke
August 7, 2014
Yahoo Finance
We have met the enemy and he is us. Yesterday, in a series of hits as operatic and brutal as the last 15 minutes of the Godfather, the government effectively made inversion through corporate merger an offense punishable by corporate death.
Using the threat of an unlimited Treasury investigation, the President and Senator Dick Durbin stopped Walgreen ( WAG) from moving to Switzerland. The wreckage of some $10 billion in lost stock value for mostly Main Street investors was left as a grim reminder not to cross the government by, in this case, following the letter of our own stupid laws.
As a refresher, inversion is what it's called when a U.S. corporation buys a foreign outfit and in effect moves their headquarters to that country, which inevitably has a lower tax rate. It's not a classy move but it's legal because that's the way Congress wrote the tax codes. The U.S. has a 35% corporate tax rate but no one actually pays that much. If the government wanted to maximize its tax revenue you could write our whole tax code on a dinner napkin. Instead it's tens of thousands of pages. To those with the best accountants go the biggest savings.
No one likes inversion except investment bankers and accountants. A company like Walgreen has plenty on its plate trying to be the world's largest chain of pharmacies and employing 175,000 Americans full time. Still, they're public and that makes maximizing profits job number one. The check on that greed is supposed to be the law. Since Congress and the White House can't even agree to change rules that everyone hates we've been talking about countries stashing some $2 trillion overseas and doing another quarter of a trillion in inversion M&A deals since 2011.
It's demagogic blather to say it's unpatriotic to seek lower tax rates. This country was literally founded on a tax beef. "Taxation without representation." Ring a bell? The corporations are doing their job. The government is there to hold their greed in check. All of this has been debated and settled for hundreds of years. The U.S. has a Kant / Locke hybrid model that generally works pretty well.
Ironically the public had already stopped Walgreen. It's unlikely they would have moved simply given the PR nightmare it would have created, but we'll never know for sure. There was political capital to be had and this is an election year so the government more or less forced Walgreen to complete the merger in a wildly inefficient way. While the President walked around like he'd just won Wrestlemania, Walgreen shareholders got shelled to the tune of 15% and $10 billion. If your immediate reaction is "good!" you're getting played. The biggest shareholder of Walgreen isn't some evil rich guy. It's you and me. Vanguard has about 50mm shares. State Street has 37 million. Those are widow and orphan pension mutual fund companies. The government couldn't do it's job so it hammered Main Street investors and played it off like a triumph of good over evil.
It's easy to make big business the enemy but it's also wrong. The enemy is us and the people we elect. The villain here is ignorance. We'll all be richer in mind and money if we seek to hold the right folks accountable for our collective failings.
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| To: Glenn Petersen who wrote (3730) | 8/8/2014 12:29:10 PM | | From: richardred | | | | I guess this still leaves the door open for foreign companies to buy US companies and bring surplus currency back to their home country at their lower tax rate.
P.S.
Aside from the Federal level.
IMO Tax breaks do play a role in corporate planning at the local level also. I think some of the high local tax states like NY are finding this out.
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| To: richardred who wrote (3731) | 8/8/2014 1:10:44 PM | | From: Glenn Petersen | | | | Tax breaks do play a role in corporate planning at the local level also. I think some of the high local tax states like NY are finding this out.
Absolutely. Illinois has also lost a large number of companies because of its high corporate and individual tax rates. Both Wisconsin and Texas have actually run ad campaigns in the state. Local municipalities try to offset the damage by offering various incentives, including relief on real estate taxes. |
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| To: Glenn Petersen who wrote (3732) | 8/8/2014 2:46:33 PM | | From: richardred | | | | | This reminds me of a small company I hold in Chicago called COBR-COBRA ELECTRONICS. They don't make a lot of money, but have tax loss carryforwards. These type of companies used to be targeted acquisitions by complimentary companies just for the tax loss carryforwards. Our represenatives took away the incentives for doing so many years ago. It's nice they make their products in America, but the lack of being competitive has dealt a blow IMO. |
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| To: richardred who wrote (3731) | 8/8/2014 3:04:47 PM | | From: Glenn Petersen | | | | I guess this still leaves the door open for foreign companies to buy US companies and bring surplus currency back to their home country at their lower tax rate.
An Inversion in All but Name
By JEFFREY GOLDFARB
DealBook
New York Times
August 8, 2014 2:08 pm
Behold the unversion.
United States-based data protection firm SafeNet may very well be able to slash its tax rate as part of a cross-border deal. Instead of doing so by acquiring an overseas company – a move known as an inversion – it is selling itself for $890 million to Dutch digital security outfit Gemalto. The deal shows the limitations of a possible Washington ban on inversions.
Corporations have been trying to leave the shores of the United States apace. Exploiting a portal in the tax code, they are buying smaller rivals in other countries as a way to change domicile and in some cases sharply reduce what they owe to Uncle Sam. The backlash, now joined by President Obama, has become strident. The decision by drugstore chain Walgreen to opt out of a potential inversion this week could be one notable consequence.
Sales of American companies to overseas buyers, though, are not in the cross-hairs. Yet SafeNet’s deal could have a similar effect to an inversion. Presumably its tax home can shift from Baltimore to Amsterdam, where its new $8 billion parent company is located. Over half SafeNet’s sales last year were generated outside the United States, Gemalto said on Friday, and would therefore be eligible for a reduced tax rate under a new domicile.
SafeNet was taken private in 2007 by buyout firm Vector Capital so recent financial information is not public. According to a prospectus filed as part of a plan to float again a few years ago, SafeNet indicated it may have some buffers to curb its tax bill temporarily. In its last annual report as a public company, however, the company reported an effective income tax rate of 36 percent in 2003, 42 percent in 2004 and 50 percent in 2005. Last year, Gemalto’s tax rate was 12 percent.
As mergers go, the SafeNet deal is relatively plain vanilla. The buyer’s shares even went up on the news, as often happens these days. For the anti-inversion crowd, though, it may signify something more important. A Washington crackdown won’t necessarily stop United States companies from emigrating. In lieu of seeking a target with a cheaper tax domicile, they may just hang out for-sale signs to attract foreign suitors.
Jeffrey Goldfarb is U.S. editor at at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
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| To: richardred who wrote (2798) | 8/9/2014 12:10:14 PM | | From: richardred | | | | Siemens Can Reach Dresser-Rand With Record Bid: Real M&A
By Brooke Sutherland and Jennifer Surane August 08, 2014
Siemens AG (SIE) may have to offer a record price tag to finally get the oilfield equipment maker it’s been coveting for three years.
Dresser-Rand Group Inc. ( DRC:US) has hired Morgan Stanley after potential suitors expressed interest in an acquisition, according to people familiar with the matter. Siemens, which has evaluated Dresser-Rand as a takeover candidate since at least 2011, may be willing to pay more than $80 a share to add the $4.8 billion company’s dominant position in compressors as it seeks to expand in the energy industry, said Gabelli & Co.
“Siemens and Dresser-Rand are natural partners, particularly as Siemens pushes down this strategic path to build out an oil and gas offering,” Justin Bergner, a Rye, New York-based analyst at Gabelli, said in a phone interview. “Siemens has the most compelling business case and therefore a reason to pay the most.”
A bid at that $80-a-share price would value Dresser-Rand ( DRC:US) at almost 18 times its profit in the last year, surpassing the previous record multiple that General Electric Co. paid for Lufkin Industries Inc. in 2013. Dresser-Rand is worth the expense, according to William Blair & Co., which says buyers will be drawn to the Houston-based company’s promising new subsea technology and steady cash flow from maintenance services. Swiss pumpmaker Sulzer has also weighed making an offer, people familiar with the matter said.
Cash Pile After bowing out of the bidding for Alstom SA’s gas turbine business earlier this year, Siemens is armed with “huge” firepower for deals, Chief Executive Officer Joe Kaeser said in an interview last month. One preferred use for the conglomerate’s $12.5 billion cash stockpile -- which is poised to swell even more after the sale of two health-care units -- is energy acquisitions in the U.S.
Production in the country has soared as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies trapped in shale-rock formations. Siemens wants to take better advantage of that boom, Kaeser said.
“Our products are good, but our installed base is not that great,” he said in the interview. “If you’re not in the installed base it’s hard to get it in, because no one takes stuff out and puts your stuff in, there’s just too much at risk.”
Dresser-Rand would give Kaeser the largest system of compressors in America and complement Siemens’ pending $1.3 billion purchase of Rolls-Royce Holdings Plc’s energy aero-derivative gas turbine and compressor business, said Bergner of Gabelli, a unit of Gamco Investors Inc.
Worth It He estimated Siemens could bid more than $80 a share for the company, a 27 percent premium to yesterday’s close ( DRC:US). That would value Dresser-Rand at 17.6 times its earnings before interest, taxes, depreciation and amortization in the last year, a record for similar-sized oilfield equipment deals, according to data compiled by Bloomberg. GE paid about 16.6 times Ebitda for Lufkin last year.
“They’re worth the premium,” Chase Jacobson, a New York-based analyst at William Blair, said in a phone interview. “Being part of a larger company would open up new opportunities where it could be more price-competitive. It just gives them better negotiating power.”
Sulzer could also be a logical buyer, Bergner of Gabelli said. The company, which will get almost $1 billion in proceeds from the sale of a coatings unit, is seeking acquisitions in rotating equipment such as pumps and compressors, said CEO Klaus Stahlmann.
Cash Preference While Dresser-Rand would fit what Sulzer is looking for, Siemens has more cash and shareholders would probably prefer a sale to the German conglomerate, said one of the people familiar with the matter, who asked not to be named because the information is private.
Getting Dresser-Rand’s management to agree to a deal won’t be easy. CEO Vincent Volpe Jr. isn’t interested in a sale and is seeking defense advice from Morgan Stanley, one of the people said. In the past, Volpe’s high price expectations have been the biggest obstacle to a takeover, other people said.
Valued at 14.4 times Ebitda ( DRC:US), Dresser-Rand is already trading at a premium to the median multiple paid in oilfield equipment industry deals, according to data compiled by Bloomberg. The company may want as much as $90 a share in a takeover, which could be too much for potential buyers, said Daniel Leben, an analyst at Robert W. Baird & Co.
“The question is, can you find someone that’s willing to pay a significant takeout premium and the multiple it would require?” Leben said. “We just haven’t seen any transactions like that.”
For Siemens, it may be worth it to finally get a hold of Dresser-Rand. After losing Alstom to GE, it’s in a position to make a move.
A deal “makes a lot of strategic sense,” Bergner of Gabelli said. Siemens “clearly had a set of money that was prepared to be put to work in a major acquisition.”
To contact the reporters on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net; Jennifer Surane in New York at jsurane4@bloomberg.net
businessweek.com |
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| To: richardred who wrote (3638) | 8/9/2014 12:36:26 PM | | From: richardred | | | | Snyder’s-Lance reaches ‘key turning point’
8/8/2014 - by Eric Schroeder
CHARLOTTE, N.C. — The sale of its private label business and the acquisition of Baptista’s Bakery combined to make the second quarter of 2014 “a key turning point” for Snyder’s-Lance, Inc., the company’s top executive said.
“A lot has been achieved over the last 90 days as we execute day in and day out to build our overall business and improve our shareholder value,” Carl Lee, president and chief executive officer, said during an Aug. 7 conference call with analysts. “But even more important we’ve been able to continue to execute our strategic plan and achieve a couple of milestones that we truly think are noteworthy and really reposition our company for extended growth and a very bright future.”
Those milestones included the sale of the company’s private label business to Shearer’s and the acquisition of Baptista’s Bakery. During the conference call, Mr. Lee welcomed the opportunity to expand on why Snyder’s-Lance made a move to buy Baptista’s.
“A natural question I would have, maybe looking from the outside in, is why would you buy your contract manufacturer?” he said. “Why would you invest your hard earned capital there? For us it was an absolute strategic move because Pretzel Crisps is an important part of our overall future. And, with Baptista’s Bakery's capabilities, we’ve launched a number of new items here already. We’ve got a number of new items coming so it gives us a chance to continue to expand that brand and improve our overall margins. But what I’m really excited about even above that, which is important, is that we’ve got a lot of new items for 2015 that Baptista’s Bakery is making for our distribution business.”
Mr. Lee said the company will begin to roll out new items under the Snyder’s of Hanover and Cape Cod brands that are made at the Baptista’s Bakery facility. Doing so will allow the company to continue to tap into Baptista’s Bakery’s “unique” skill set and equipment that has been used to deliver on-trend, consumer driven new items.
“So that’s important,” he said. “I think the first big opportunity and win with Baptista’s Bakery is the innovation pipeline that we’re expanding, on the success we already have, using their capabilities.”
Mr. Lee also said Baptista’s Bakery adds critical mass and scale.
“It increases our purchasing scale, increases our chance to tie in with them and drive some synergies through logistics, purchasing, overhead, other areas,” he said.
Net income at Snyder’s-Lance in the second quarter ended June 28 was $11,677,000, equal to 17c per share on the common stock, down 10% from $12,979,000, or 19c per share, in the same period a year ago. Excluding special items, net income was $20,619,000, up from $16,903,000 a year ago. Net revenue totaled $399,596,000, up 6% from $378,489,000.
For the six months ended June 28, net income was $28,493,000, or 41c per share, down 13% from $32,822,000, or 47c per share, in the same period a year ago. Net revenue was $772,612,000, up 5% from $737,030,000.
Mr. Lee pointed to core brands as a driving force behind the sales growth during the first half of the year.
“We’ve had an incredible year so far with Cape Cod as we have strong growth in all these core markets, as we’ve had strong growth in some new channels and also as we begin to expand it out to the West coast,” Mr. Lee explained. “So Cape Cod has done a tremendous job of growing for us, and we’ve seen a long-term ability to continue to expand the brand. And we’re excited about tying it into popcorn. That’s performing quite well. And not only do we have a great kettle chip, we’ve had a great platform for some additional growth long term. Pretzel Crisps continues to do well. There’s more and more traffic going into the deli, and we’re right there to seize it with a direct sales force that’s in place to continue to expand our visibility, our distribution and to leverage our new items.”
The company’s Snyder’s of Hanover brand also has performed well.
“The innovation there, the Sweet and Salty, the Pretzel Spoonz and some of the other items have performed extremely well,” Mr. Lee said.
Overall, Mr. Lee said Snyder’s-Lance has “accomplished a lot in 2014.”
“We were aggressive,” he said. “We set milestones. We set very aggressive targets and we’ve achieved those and all of that’s been building to the transformation that we’re talking about now for our company. Today we are clearly a focused, branded snack company positioned at the center of consumer trends, which we welcome and we dig into deeper and deeper every day.”
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| From: Glenn Petersen | 8/18/2014 8:21:30 AM | | | | | | In Silicon Valley, Mergers Must Meet the Toothbrush Test
By DAVID GELLES
DealBook
New York Times
August 18, 2014 7:32 am
Credit Liz Grauman/The New York Times
_______________
MOUNTAIN VIEW, Calif. — When deciding whether Google should spend millions or even billions of dollars in acquiring a new company, its chief executive, Larry Page, asks whether the acquisition passes the toothbrush test: Is it something you will use once or twice a day, and does it make your life better?
The esoteric criterion shuns traditional measures of valuing a company like earnings, discounted cash flow or even sales. Instead, Mr. Page is looking for usefulness above profitability, and long-term potential over near-term financial gain.
Google’s toothbrush test highlights the increasing autonomy of Silicon Valley’s biggest corporate acquirers — and the marginalized role that investment banks are playing in the latest boom in technology deals.
Many of the biggest technology companies are now going it alone when striking large mergers and acquisitions. Companies like Google, Facebook and Cisco Systems are leaning on their internal corporate development teams to identify targets, conduct due diligence and negotiate terms instead of relying on Wall Street bankers.
“Larry will look at potential deals at a very early stage,” said Donald Harrison, Google’s vice president of corporate development. “Bankers can be helpful, but they’re not necessarily core to the discussions.”
Deals with unadvised buyers are increasing rapidly. The acquiring company did not use an investment bank in 69 percent of American technology acquisitions worth more than $100 million this year, according to Dealogic. That number was 27 percent 10 years ago.
Above, executives from Beats Electronics and Apple, after Apple bought Beats this year in a $3 billion deal conducted without Wall Street’s help.Credit Paul Sakuma/Apple
________________
When Apple bought Beats Electronics for $3 billion this year, it eschewed the help of professional deal advisers. When Facebook spent $2.3 billion for the virtual reality company Oculus VR in March, it did so without the help of bankers. And when Google acquired the mapping company Waze for $1 billion last year, no bank got a cut of the fees.
In June, one of the largest-ever deals with an unadvised buyer was announced when Oracle, known for its refusal to use investment bankers, acquired Micros Systems for about $5 billion. The biggest such deal came in 2011, when Microsoft, acting alone, bought Skype from Silver Lake Partners for $8.5 billion.
The diminished reliance on investment banks comes as technology deal-making is booming. More than $100 billion in such deals have been announced in the United States this year, the most since 2000, according to Dealogic.
At the heart of the disconnect between technology companies and banks is the belief among many tech executives that some advisers simply do not know what companies like Google and Facebook are looking for.
“Bankers do two things well: financial evaluation and negotiation,” said Richard E. Climan, a partner at the law firm Weil, Gotshal & Manges who often works with companies to complete deals where no banks are involved. “But there’s a feeling that investment bankers might not be so important on the evaluation of early-stage tech companies.”
Amin Zoufonoun, Facebook’s vice president for corporate development, said some bankers would come in and pitch acquisition candidates, like the user reviews site Yelp or the payment network PayPal. But instead of trying to swallow already established Internet brands, Facebook uses acquisitions to make big bets on the future and plug technical holes. And in Silicon Valley’s relatively small circle of elite entrepreneurs, executives and venture capitalists, connections are easy and ample.
Facebook’s most recent big deal, the acquisition of Oculus VR, came as a surprise to even seasoned technology watchers. But Marc Andreessen, a Facebook board member, was also on the board of Oculus VR, paving the way for the deal. The move had nothing to do with improving the social network’s main site or increasing sales. Instead, it was a bet that virtual reality would emerge as a new operating system of sorts.
While other companies focus on deals that will bolster their earnings per share, “we haven’t done a single deal like that, where we are looking at a target with that being a rationale,” Mr. Zoufonoun said.
The same dynamic was true when Google acquired Nest, the home monitoring company, for $3.2 billion this year. Nest’s current sales are a drop in Google’s ocean of profit, but the deal gave Google an entry to a potentially huge new market.
Big tech companies sometimes struggle to explain such unconventional deals to investors. When Facebook spent $19 billion to acquire WhatsApp, assisted only by the boutique bank Allen & Company, shareholders tried to square the enormous price with WhatsApp’s small team of engineers and minuscule revenue.
“It’s more art than science at times,” said Sanjay Kacholiya, head of corporate development at Eventbrite, a ticketing start-up. “That can make it difficult for an investment banker who’s familiar with earnings per share and discounted cash flow.”
Not all unadvised deals go well. Google spent $228 million on the social games company Slide without the help of a bank, then unceremoniously shut it down. Cisco didn’t work with a bank when it paid $590 million for the maker of Flip video cameras, and it wound up shuttering the unit quickly. But thanks to tech companies’ enormous war chests, such mistakes rarely have long-term consequences.
While traditional investment banks might not be comfortable suggesting that clients pay such startling prices for relative unknowns, many big tech companies have built up robust corporate development departments designed to do just that. The teams are largely staffed by former bankers who have abandoned pinstripes and wingtips for T-shirts and sneakers.
Cisco, which has acquired more than 170 companies, decided it was more efficient — and more economical — to hire its own full-time bankers rather than pay millions of dollars in fees each time it struck a deal.
“Our heritage has been embracing M.&A. as a way to enter new markets,” said Hilton Romanski, Cisco’s head of corporate development, who started his career as a JPMorgan banker. “It makes sense to build a relatively scaled effort around M.&A. with teams and talent that understand the market.”
Facebook has hired bankers away from Credit Suisse and Jefferies, among other companies, and gives them more responsibility than they would have at a bank. “They can run a deal from beginning to end,” Mr. Zoufonoun said. “As an analyst, they were doing one part of a pitch deck.”
At Google, Mr. Harrison has an employee looking after the deal needs of each of the company’s 12 product areas, like ads, YouTube and search. That person goes to all meetings held by the senior members of that group, staying attuned to possible acquisition needs.
But the hours are not necessarily any better than on Wall Street, said Mr. Zoufonoun, who stayed up several nights in a row working to close the WhatsApp deal and fell asleep at the office the day it was announced.
Once a target is identified and it is time for an approach and negotiations, corporate acquirers working on their own often diverge from the standard advice given out by bankers.
Mr. Zuckerberg developed friendships with the chief executives of Instagram and WhatsApp before Facebook went on to buy them. Only after the men knew one another well and began discussing integrating the products did discussions about actual transactions begin. Even then, much of the focus was on how autonomously the target company would operate once acquired.
“It’s very easy to treat M.&A. transactionally, to not put the target company first. Are we aligned? Do we want the same thing post-acquisition?” Mr. Zoufonoun said. “I always use the marriage example. You should spend a lot of time dating first. It takes two to dance.”
Once a deal is made, the real work of merging corporate cultures begins. “The success or failure of deals is really determined by the success or failure of the integration,” Mr. Harrison said, adding that Google closely monitored new acquisitions for two years.
The trick is to strike the right balance of blending teams while also allowing for a measure of autonomy.
“The last thing you want to do as an acquirer is go in there and start changing things around,” Mr. Zoufonoun said.
Tech companies emphasize that they maintain good relationships with many banks and use them on big deals when financing or fairness opinions — independent justifications of a deal — are needed. When Google acquired Nest, for example, Lazard provided a fairness opinion to Google’s board.
But often, when big tech companies are looking to grow through acquisitions, it is the culture and vision, not the earnings and revenue, that are of paramount importance. And for the likes of Facebook and Google — shareholder darlings that are flush with cash and run by well-connected entrepreneurs — it is easier than ever to get by without bankers.
“The most important thing is that soft stuff,” Mr. Zoufonoun said. “And that soft stuff is more challenging for a bank or an adviser to tap into.”
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