FINANCIAL BENEFITS OF FOREIGN “INVERSIONS” FALL BELOW CORPORATE EXPECTATIONS FOR SOME COMPANIES

By TONI ELLINGTON

This blog previously reported on the trend of U.S. companies completing “inversions,” where a U.S. company establishes its domicile abroad by merging with a foreign company, thereby seeking to avoid higher U.S. taxes and more costly U.S. liabilities and litigation.  According to a recent Standard and Poor’s 500 index report on companies that have done inversions, the companies are actually underperforming their financial benchmarks.

Inversions were pioneered as a strategy by oilfield companies, with many of the companies reincorporating in the Cayman Islands and Bermuda.  Using statistics from Reuters, Standard and Poor looked at 52 U.S. companies that had completed inversions, and found that many performed poorly.  The poor performance defeats the stated purpose of an inversion to achieve greater financial benefits for shareholders.  McDermott International, a Texas oilfield company which reincorporated in Panama in 1983, is one of the recent poor performers reported in the Standard and Poor index.  Rowan Company and Transocean, Ltd. are two other oil industry companies whose performance fell below shareholder expectations following inversions.

Because of the financial risks and political pressure, some U.S. companies have walked away from inversions in 2014.  Walgreens has announced it would not reincorporate in England.  Pharmaceutical company Pfizer has not gone through with a planned inversion.  

Although the Obama administration has publicly denounced the practice of U.S. companies doing inversions to avoid taxes, Congressional action on the issue is unlikely.  As previously reported in this blog, Transocean, Ltd. has to date avoided litigation in the U.S. in at least one of the shareholder suits over the 2010 Deepwater Horizon oil spill in the Gulf of Mexico because of its inversion transaction with a Swiss company.

For more information, contact Toni Ellington at 504-599-8500.