Behind Pfizer's bid for AstraZeneca - flee high US Corporate taxes
Pfizer's Tax Takeover - Spend $100 billion abroad rather than pay 40% at home.
Excerpt:
U.S. pharmaceutical giant Pfizer Inc. wants to buy AstraZeneca, and not just for its pipeline of cancer drugs. Acquiring the British company would also give Pfizer shareholders welcome relief from a U.S. corporate tax rate that is among the world's highest. Instead of paying punitive rates to return its money to the U.S., Pfizer figures it can get a better return paying $100 billion or so to buy a foreign company. .... Pfizer's presentation also noted the deal would be "structured to achieve an efficient tax structure." Mr. Read noted the "negative impact" of the U.S. tax code, which would be "problematical" if applied to the money AstraZeneca now earns in the U.K. That's because the combined state-federal corporate income tax rate in the U.S. is nearly 40%, compared to the 21% rate in the U.K. Though Pfizer is a U.S. company, more than 70% of its cash—amounting to more than $35 billion—is sitting overseas. To bring it back home would expose shareholders to the punitive U.S. rate. Instead, Pfizer aims to use some of that cash pile to finance the merger, and Mr. Read also plans to domicile the new combined holding company in the U.K., though its headquarters would remain in New York. Can anyone blame him? We call the U.S. business tax rate "among" the world's highest because, outside of places like North Korea that don't allow private business, it's nearly impossible to find a more punitive rate than the 40% inflicted in the U.S.Comment: Secret .... corporations are not the ultimate payers of income taxes ... people are.
more.
ReplyDeleteBecause a key goal of the planned takeover is to get the tax advantages of re-domiciling the enlarged group in Britain, there is a limit to how much cash Pfizer can offer, since at least 20 percent of its shareholders are required to be UK-based.
More and interesting: Pfizer Looks for a Quick Strike on AstraZeneca
ReplyDeletePfizer has one good reason to go hostile if Astra does not budge. Walking away would expose it to the risk that the United States government changes its fiscal regime. Then Pfizer could no longer take advantage of the possibility to “invert” its tax domicile into Britain through the takeover.
Hostile deals are not unprecedented in the pharmaceutical industry. But they have costs. Typically, they require a 10 percent bump in price compared with 5 percent to 7 percent in negotiated deals, according to one top banker. Moreover, the bidder cannot review the target’s books and thus assess its true worth.
Britain’s Takeover Panel sets a 60-day limit for the acceptance of offers and allows an additional 21 days for the deal’s various conditions to be met. It grants an extension only if the target company wants one. If a hostile Pfizer did not secure all regulatory approvals in 81 days, the bid would lapse. Alternatively, waiting for approval first would give AstraZeneca more time to build its defense. With possible Chinese clearance needed, the process could drag. Pfizer will therefore want a friendly deal completed as quickly as possible.
Update: Pfizer Enters Takeover Discussions With AstraZeneca, Sources Say:
ReplyDeleteThe terms of the informal offer from New York-based Pfizer couldn't be learned. Its earlier approach, which was rejected, valued AstraZeneca at nearly $100 billion.
The renewed discussions suggest that the two sides might be getting closer to striking a friendly deal, though there is no guarantee they will go anywhere.
Also: In Drug Mergers, There's One Sure Bet: The Layoffs
ReplyDelete