- U.S. Treasury Secretary Jack Lew on Monday evening announced initial regulatory plans to curb so-called "tax-inversion mergers," an increasingly popular tactic being used by biotechs and healthcare companies to lower their effective corporate tax rate by shifting their domiciles abroad.
- Several big-name mergers have been announced by American companies this year, including AbbVie's planned acquisition of Ireland's Shire and Medtronic's merger with Irish firm Covidien. Elected officials, shareholders, and even some international pharma companies like AstraZeneca have cried foul over the deals.
- The newly-announced regulations will make it harder for U.S. companies to use the deals to lower their tax base by considering certain foreign loans "U.S. property," barring large pre-merger dividend sales that are used by corporations to "slim down" so that they can qualify for an inversion merger, and disregarding "passive assets" given to (non-bank) foreign partners to make those companies seem bigger, according to CNN Money.
"These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes," said Treasury Secretary Jack Lew of the new regulations. Companies involved in yet-to-be-finalized deals were far less enthusiastic, concerned that their American partners may be scared off by the new rules.
But some of the big-name mergers may still go through since there's only so much the Obama administration can do through unilateral administrative action. Legislation to curb or ban the deals -- which has been supported by lawmakers from both sides of the aisle -- is unlikely to materialize any time soon due to political disagreements over broader tax reform measures and fiscal policy. Medtronic and Covidien have the option to exit their planned $43 billion deal at no fault.
Seeking Alpha notes that one deal likely to remain completely unaffected is Horizon Pharma's inversion deal with Irish Vidara Therapeutics, which closed last week. FiercePharma reports that analysts believe the merger most likely to be affected by the new rules is Mylan's purchase of the rights to Abbott's drug portfolio.