Bankers say tax inversions don’t drive M&A
NEW YORK — U.S. Congress and the president regularly decry companies moving headquarters abroad for tax benefits but two top Wall Street bankers have said that lower taxes do not drive the deals.
The shifting of corporate headquarters generally involves a merger of two companies, with the foreign company in a lower-tax country such as Ireland or the Netherlands. These so-called corporate tax inversions have become a political hot-button issue.
Speaking at a conference of the Society of American Business Editors and Writers last Friday, the co-head of global mergers and acquisitions for Goldman Sachs said the activity is happening for reasons other than tax breaks.
“If there’s a time to deal your dream deal, now’s the time to do it,” said Gregg Lemkau, noting that low borrowing costs, an improving economy and a strong stock market are leading companies to merge.
Lemkau and Chris Ventresca, co-head of global mergers and acquisitions for JPMorgan Chase, both expected more than $1 trillion in mergers and acquisitions activity this year. That’s a steep increase after several flat years because of economic and political uncertainty.
The Treasury Department late last month took steps to discourage companies from moving headquarters abroad for tax advantages, and the Wall Street bankers insisted such action disadvantages U.S. based companies with global operations. They pointed to German companies that recently have gone on a spending spree acquiring firms in the United States.
Treasury’s actions were “a Band-Aid solving the wrong issue,” said Lemkau.
Deals such as Burger King’s planned merger with Canadian company Tim Hortons, which is thought to include a shift of corporate headquarters to lower-tax Canada, have captured media attention and enraged lawmakers. But that interest is “exponentially greater than the business world’s focus,” said Ventresca, who stressed that merger activity this year has been driven by creating value for shareholders not tax savings.
Proof of that, suggested Lemkau, is that merger activ- ity has been among “the bluest of blue chip companies.”
Lowering corporate tax bills is in the mix during the mergers, but it is not the driver behind the merging to two corporations, the pair of bankers insisted.
President Barack Obama has called on Congress to pass legislation that would thwart moves by companies to shift headquarters abroad, causing an estimated $17 billion in lost tax revenue over the next decade.
Republicans and some conservative Democrats frown on a standalone bill, preferring that it be addressed through a broader revamp of the corporate tax code. The inaction prompted Treasury Secretary Jacob Lew to use executive powers to make tax inversions harder to carry out.