In Deal to Cut Corporate Taxes, Shareholders Pay the Price
Medtronic is pursuing a deal to move abroad and save taxes. But few have noticed that the company’s shareholders will be the ones left with a big tax bill as a result.
Oddly, some of Medtronic’s largest shareholders — BlackRock, Vanguard and other mutual funds — may simply not care.
The Minneapolis-based Medtronic offered last month to buy Covidien of Ireland for $42.9 billion. When one company acquires another, the buyer’s shareholders typically do not pay taxes. The reason is simple: The buyer’s shareholders do not receive anything new, they simply keep holding shares in the buyer.
Yet things are different in this deal because Medtronic, like some other American companies, is pulling a tax maneuver known as an inversion.
As long as the shareholders of the foreign company own 20 percent or more of the combined entity, a company in the United States can adopt a new homeland for tax purposes as part of the acquisition, in that way lowering its taxes and permitting it access to cash held abroad.
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http://dealbook.nytimes.com/2014/07/08/in-deal-to-cut-corporate-taxes-shareholders-pay-the-price/?_php=true&_type=blogs&_php=true&_type=blogs&_r=1&
So much for maximizing shareholder value. It's all about screwing Uncle Sam.
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