U.S. Corporate Tax Rate Makes Ireland the M&A Hotspot

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No wonder U.S. President Barack Obama addressed the U.S. corporate tax rate in his "grand bargain" proposal Tuesday…

Avoidance or lowering of taxes has become a major consideration of corporate managements around the world. This is a result no doubt of the pursuit globally by governments of more and more money through taxes from both corporations and individuals.

The recent $8.6 billion deal in the pharmaceutical sector between Perrigo Company (NYSE: PRGO) and Ireland-based Elan Corp. PLC (NYSE ADR: ELN) could be the poster child for the effect of this trend – it drives corporate revenue out of the United States.

Now the president has proposed cutting the U.S. corporate tax rate from 35% to 28%, and giving manufacturers a preferred rate of 25%. He also plans on a minimum tax on foreign earnings to target corporate tax evasion.

President Obama wants to use the money generated from overhauling the tax code to fund infrastructure projects and education improvement programs – all of which will generate more U.S. jobs.

But until this deal gets passed – if ever – the high U.S. corporate tax rate will keep sending companies like Perrigo in search of desirable corporate targets overseas.

One of the favored spots: Ireland.

Why Elan is a Good Deal for Perrigo

Perrigo, a maker of over-the-counter drugs for the store brand market, is paying Elan shareholders $6.25 in cash and $10.25 in Perrigo stock. Perrigo also sells generic drugs, nutritional products, infant formulas and animal remedies.

One key asset Perrigo acquires with its purchase of Elan is the royalty stream on the multiple sclerosis drug Tysabri. Elan had sold a 50% interest in Tysabri to Biogen on Feb. 6, 2013 for $3.25 billion. It retained royalties from the drug that had sales of $1.6 billion last year.

But Tysabri and Elan's other products are just bonuses to the real sweet spot of the deal: The corporate tax rate in Ireland is only 12.5%, the lowest rate in the developed world.

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