It's tax inversion. Or, something very much like it.
The merger between, U.S.-based IHS Inc., an information and analytics provider, and Markit Ltd., a market-data company - will become a single entity to be known as IHS Markit - a $13 billion company.
Aside from being part of an ultimate data provider combo, IHS will now be able to enjoy lower tax rate that comes with the deal and from moving some of its operations in the UK, while the rest will remain in Englewood, Colorado, where it was originally located.
With some of the new company's operations coming out of London, IHS is expected to save as much as $125 million within three years. Another change is the tax the U.S.-based company had to pay.
In the U.S., corporate tax rates are at 35 percent, considered highest among the developed nation. In comparison, companies based in the UK pay just 20 percent in corporate taxes. The merged company is forecast to pay about 20-25 percent adjusted tax rate.
However, Robert Willens, an expert on corporate tax and accounting, said the deal can't be considered a legitimate form of tax inversion even though it presents the qualities of one.
That's because the new deal dilutes the number of shares IHS actually owns in the new company. Specifically, IHS shareholders will own just 57 percent, while Markit shareholders will control 43 percent, says IHS.
In addition, the new corporate structure of the company will allow IHS to access foreign cash it stockpiles overseas, of course, without paying U.S. taxes. Moreover, getting the best of both worlds, the IHS Markit can keep its debt in the U.S. while shifting its earnings overseas, Willens said.
Such practices are something the U.S. government is trying to crack down on. Recently, the Obama administration said it is tightening its grip on U.S. corporations by creating a new set of rules that will make it more difficult for companies based in the country to reincorporate on foreign soil.
"We don't see this transaction as being implicated by the U.S. anti-inversion rules," IHS Chief Financial Officer Todd Hyatt said during a conference call with industry experts and observers.
When the news did break out about the merger, both companies' individual stock prices shot straight up - IHS's shares increased 5.6 percent from $92.90 to $116.90, while Markit's shares are 10.9 percent up to $32.70.
Photo: Ken Lund | Flickr
