By Braxton Roam, MJIL Staff Member
The global mergers and acquisitions landscape has drastically transformed over the past half-century.[1] Hostile takeovers peaked at 40% of the total M&A market in 1967, but has dropped to just 8.6% by 2014.[2] To that end, investment banks have found other methods to create revenue, including advisement and financing of corporate inversions.[3] According to Dealogic, U.S. investment banks have advised on announced tax inversion deals valued at more than $700 billion since 2011, with $240 billion from announced deals in 2015 alone.[4] These figures do not include the many unannounced deals that occur each year.[5] With U.S. companies continuing to hold more than $2.5 trillion in cash overseas,[6] many corporations remain in the market for cash investments. Further, this amount has increased six-fold since 2002 when corporations held less than $400 billion overseas.[7]
For example, Johnson & Johnson is headquartered in New Jersey with 250 subsidiary companies managing products like Band-Aids, Listerine, Motrin, Nicorette, and Tylenol that are sold in 175 countries around the world.[8] Johnson & Johnson recently announced they are in discussions to make a cash deal with Swiss drug company Actelion Pharmaceuticals, Ltd.[9] Despite the estimated $20 billion cost of Actelion, Johnson & Johnson can afford to make massive cash acquisitions because the company holds nearly $40 billion in cash overseas.[10] Finalizing a deal with Actelion would be Johnson & Johnson’s third multi-billion-dollar cash acquisition in 2016 alone.[11]
Now that Donald Trump has been elected as the next President of the United States, he plans to lower the U.S. corporate tax rate and implement a corporate repatriation holiday that would allow corporations to bring the accumulated cash stored stashed overseas back into the United States at a lower tax rate.[12] Donald Trump has proposed to reduce the corporate tax rate from 35 percent down to 15 percent.[13] He also proposes to enact a 10 percent repatriation tax on accumulated profits of foreign subsidiaries of US companies to allow businesses to hire, innovate, and expand the U.S. economy.[14] With Trump’s corporate tax plan and Ireland’s limitation on the Double Irish Arrangement,[15] we may see numerous corporations moving their corporate headquarters back to the United States along with their accumulation of cash held overseas.
[1] Matthew D. Cain, Stephen B. McKeon, & Steven Davidoff Solomon, Do Takeover Laws Matter? Evidence from Five Decades of Hostile Takeovers, 122 J. of Fin. Econ. (forthcoming 2016).
[2] Id. at 26.
[3] John Carney, Treasury’s Inversion Crackdown Will Sting Investment Bankers, Wall Street Journal, Apr. 6, 2016, http://www.blogs.wsj.com/moneybeat/2016/04/06/treasurys-inversion-crackdown-will-sting-investment-bankers/.
[4] Id.
[5] Id.
[6] Jeff Cox, US Companies are Hoarding $2.5 Trillion in Cash Overseas, CNBC News, Sept. 20, 2016, http://www.cnbc.com/2016/09/20/us-companies-are-hoarding-2-and-a-half-trillion-dollars-in-cash-overseas.html.
[7] Sean Williams, Donald Trump’s Corporate Tax Repatriation Plan Would Benefit These 5 Companies the Most, The Motley Fool, Nov. 5, 2016, http://www.fool.com/retirement/2016/11/05/donald-trumps-corporate-tax-repatriation-plan-woul.aspx.
[8] About Johnson & Johnson, https://www.jnj.com/about-jnj (last visited Nov. 27, 2016).
[9] Jonathan D. Rockoff, Johnson & Johnson Approaches Actelion About Potential Deal, Wall Street Journal, Nov. 25, 2016, http://www.wsj.com/articles/johnson-johnson-approaches-actelion-about-potential-deal-1480092170.
[10] Id.
[11] Johnson & Johnson Acquisitions, https://www.crunchbase.com/organization/johnson-johnson/acquisitions (last visited Nov. 27, 2016).
[12] Jim Nunns, Len Burman, Jeff Rohaly, & Joe Rosenberg, An Analysis of Donald Trump’s Tax Plan, Tax Policy Center, Dec. 22, 2015, http://www.taxpolicycenter.org/publications/analysis-donald-trumps-tax-plan/full.
[13] Id. at 2.
[14] Williams, supra note 7.
[15] Kelly Phillips Erb, Ireland Declares ‘Double Irish’ Tax Scheme Dead, Forbes, Oct. 15, 2014, http://www.forbes.com/sites/kellyphillipserb/2014/10/15/ireland-declares-double-irish-tax-scheme-dead/#4f5ec7f81527.