Yet another U.S. company is orchestrating a deal that will allow it to move overseas and slash its tax rate. Salix Pharmaceuticals ($SLXP) of North Carolina says it will merge with an Ireland-based unit of Cosmo Pharmaceuticals ($COPN) and buy out some of its patents for drugs to treat gastrointestinal diseases for $2.7 billion in stock.
Salix shareholders will own nearly 80% of the combined company, while Italy-based Cosmo will hold onto the rest. Because the deal was structured so that Cosmo's Irish subsidiary, called Cosmo Technologies, would be the buyer, Salix will be able to move its headquarters to Ireland.
|Salix CEO Carolyn Logan|
In a statement, Salix CEO Carolyn Logan called the transaction an "evolutionary step" that would increase shareholder value by diversifying the company's product portfolio. "The new corporate structure greatly enhances our ability to compete for licensing deals and acquisitions, and improves the economics of future business development opportunities for Salix," she says.
Perhaps, but there's little doubt the tax advantages of moving to Ireland played a major role in Salix's decision to seal the deal. Among the companies that have pursued similar tax inversions this year is AbbVie ($ABBV), which made three failed bids to pick up Ireland-based Shire ($SHPG) before sweetening its offer to £30.1 billion ($51.5 billion) earlier this week. Pfizer's ($PFE) failed attempt to buy AstraZeneca ($AZN) for $117 billion was widely believed to be driven by the potential tax savings.
Those savings can be significant. Medtronic's ($MDT) $42.9 billion acquisition of Covidien ($COV) is expected to save the company $3.5 to $4.2 billion per year.
In this latest tax-inversion deal, Salix will gain the U.S. patents for the new ulcerative colitis treatment Uceris from Cosmo. Salix had been marketing Uceris in the U.S. since January, when it paid $2.6 billion to acquire Santarus, which had picked up the license to the drug from Cosmo back in 2008. Salix will also gain an experimental antibiotic and a dye for detecting pre-cancerous lesions in the colon. Salix expects the transaction will boost earnings starting in 2016.