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Another Irish firm target for inversion?

Monday, July 21 12:43:24

Another Irish-headquartered pharmaceutical group is in line for a takeover by a US multinational as part of the so-called Tax Inversion stampede.

Drugmakers Perrigo in Ireland Actelion in Switzerland, may join U.K.-based medical device company Smith and Nephew as acquisition targets for U.S. health-care companies racing to find tax relief abroad before the U.S. government curbs the option, according to a report on Bloomberg News.

Deals for these companies would be smaller than AbbVie's $54.8 billion Shire purchase, with Perrigo's $20 billion market value the next largest among the companies. Still, they would add to a flurry of 20 completed and pending transactions since January 2012 involving companies that seek to avoid the 35 percent U.S. tax rate and free up foreign cash by redomiciling in countries with lower corporate rates, Bloomberg reported.

AbbVie's announcement of the latest so-called tax inversion on July 18 may have upped the ante for the remaining U.S. health companies to make a move before U.S. lawmakers limit the deals. Senator Ron Wyden, a Democrat from Oregon, has already proposed a bill to make such deals more difficult.

"The congressional pot was just starting to boil and this turns up the flame," Erik Gordon, a professor at the University of Michigan Ross School of Business, said of the AbbVie deal for Shire. "It's going to boil over, and there's going to be a real showdown in Congress," Bloomberg reported.

A tax inversion happens when a U.S. company acquires a foreign company at least 25 percent its size, and moves its legal address abroad, where it will face a lower corporate tax rate. It also allows an acquirer to access profits earned abroad without paying the U.S. rate.

Perrigo, the Dublin-based maker of over-the-counter and generic medicines, is "an attractive takeout candidate for certain strategic buyers" due to its "durable, highly cash-flow generative business," David Steinberg, an analyst at Jefferies LLC, wrote in a July 15 note to clients.

Perrigo moved its tax domicile to Dublin last year by purchasing Elan.

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