CF, OCI Amend Merger Agreement to Keep 'Inversion' Tax Benefit -- Update

By Lisa Beilfuss 

Fertilizer maker CF Industries and Dutch rival OCI NV, which agreed to merge in August, said they would move the tax residency of the combined company to the Netherlands from the U.K., in a move to satisfy inversion rules put in place by the U.S. Treasury.

The $8 billion tie-up is a so-called tax-inversion deal that would create a global nitrogen-fertilizer giant with a significantly lower tax bill. When the deal was signed, Illinois-based CF said it would lower its overall tax rate to 20% from 34% by moving its address to the U.K. In the Netherlands the corporate tax rate is 25%.

Inversions have helped drive mergers-and-acquisitions activity to record highs as companies have looked to foreign deal making for tax savings. In November, the U.S. Treasury unveiled new rules that beefed up existing laws governing inversion deals. The rules apply to deals in which the U.S. company's shareholders end up with more than 60% of the combined entity. Under the CF and OCI deal, CF shareholders would own 72.3% of the merged company. The biggest such deal was announced in late November when Pfizer Inc. and Allergan PLC agreed to a $150 billion tie-up that would move Pfizer's address to Dublin.

The new rules make it harder for companies to do what the Treasury calls "cherry-picking," which is finding an address in a country with a favorable tax code.

Companies are now more limited to taking new addresses in the country where the merger partner is organized.

By being a tax resident of the Netherlands, where OCI is incorporated, the new holding company would satisfy the requirements of the U.S. Department of the Treasury's notice issued on Nov. 19, CF said.

Taking the new Treasury rules into account, CF still expects roughly $500 million in annual cost savings, Chief Executive Officer Tony Will said on a call with analysts and investors. CF said the amended merger agreement doesn't affect timing of the deal's completion, which is expected by mid-2016.

Mr. Will said the combined company would have had profits generated in the Netherlands taxed at the Dutch tax rate before the Treasury rules prompted the change of address. "If anything, this is potentially a slight uptick" because CF can offset headquarter expenses at the slightly higher Netherlands rate against profit earned there.

As a result of being a Dutch company, he said, "U.K. profits will not be double taxed in the U.S. anymore," taxed once in the U.K. and streamed back to the Netherlands. "The U.S. won't have any claim on being able to tax those profits."

Write to Lisa Beilfuss at [e-mail]

(END) Dow Jones Newswires

December 21, 2015 17:02 ET (22:02 GMT)

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