New U.S. rules aimed at cracking down on corporate tax avoidance deals took a bite out of stocks like Burger King and AbbVie. Fred Katayama reports.
The U.S. move to crack down on one of the hottest trends in M&A - companies trying to avoid paying U.S. taxes in so-called "inversion" deals - could take a big bite out of the potential tax benefits for Burger King and others, and that's scaring off some equity investors. The Obama Administration made it harder for companies to do inversions and less appealing by reducing the tax benefits. The new rules took effect Monday. Investors worried that those rules could jeopardize inversion deals that had been announced but not yet completed. Most of those deals involve American pharmaceutical companies taking over European companies and moving their headquarters there to take advantage of Europe's lower tax rates. Among the stocks hardest hit: Burger King, which plans to move its base to Canada after agreeing to merge with donut chain Tim Hortons, AbbVie, which had agreed to buy Shire for $55 billion and move to Britain, Pfizer, which failed to take over British-Swedish giant AstraZeneca in a $118 billion attempt but is considering bidding again, Mylan, which seeks to move its tax address to the Netherlands by buying some overseas businesses of Abbott Laboratories. Bernstein senior analyst Aaron Gal said the rules leave Mylan with two options: complete the deal but reap fewer benefits, or scrap the merger altogether. He said, "The Mylan-Abbott deal is potentially at risk from the new Treasury rules. If so, it may derail the tail-revenue in the EU strategy Mylan was pursuing. " Investors still face uncertainty. Analysts say expect some legal challenges, and Treasury may not be done just yet.