RE:RE:RE:RE:IIROC? From the S4:
As of the date of this Circular, the former Tribute Shareholders as a group will receive Parent Shares in the Arrangement constituting approximately 34% of the outstanding Parent Shares immediately after the Transaction. After giving effect to the Transaction and the Equity Financing and Debt Financing, the former Tribute Shareholders as a group will hold Parent Shares constituting approximately 28% of the outstanding Parent Shares.
and
Upon completion of the merger and arrangement and based upon the number of shares of each of Pozen and Tribute outstanding as of the date of this proxy statement/prospectus, current Pozen stockholders will own approximately 66% of the outstanding Parent Shares, and current Tribute shareholders will own approximately 34% of the outstanding Parent Shares before giving effect to (i) any exercise of outstanding options and warrants or the vesting and delivery of shares underlying RSUs of either company and (ii) the Parent Shares to be issued to new investors pursuant to the equity and debt financings described below. Upon completion of the transactions, and the equity and debt financings described below, current Pozen stockholders will own approximately 49% of the outstanding Parent Shares, and current Tribute shareholders will own approximately 28% of the outstanding Parent Shares, after giving effect to the transactions and assuming the exchange of the exchangeable notes, but before giving effect to any exercise of outstanding options and warrants or the vesting and delivery of shares underlying RSUs of either company.
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The posted Treasury guidlines:
Today’s notice provides that in certain cases when the foreign parent is a tax resident of a third country, stock of the foreign parent issued to the shareholders of the existing foreign corporation is disregarded for purposes of the ownership requirement, thereby raising the ownership attributable to the shareholders of the U.S. entity, possibly above the 80-percent threshold.
I think, after financing, the numbers are 49% Pozen, 28% TRX, 23% Deerfield, but then I knew there were some shenanigans with Deerfield and their equity stake so... if we disregarded Tribute’s stake in the company (foreign existing), we’d get 49+23 for Pozen = 72% and 23% for Deerfield? This would put Pozen under the 80% rule, because of Deerfield cash.
However, in section 7874 of the modified code it states:
- Under current law, a U.S. company can successfully invert if, after the transaction, at least 25 percent of the combined group’s business activity is in the foreign country in which the new foreign parent is created or organized. This is the case regardless of whether the new foreign parent is a tax resident of that foreign country.
- Today’s notice provides that the combined group cannot satisfy the 25-percent business activities exception unless the new foreign parent is a tax resident in the foreign country in which it is created or organized. Thus, this rule will limit the ability of a U.S. multinational to replace its U.S. tax residence with tax residence in another country in which it does not have substantial business activities.
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Can ARALEZ claim 25% of its business activities are in Ireland/Europe? Half its revenues, now, thanks to Tribute’s strong quarter are in Canada, with Vimovo royalties coming mostly from the States, but with some global sales added (a few %) - someone would have to dig out the exact breakdown, but I don't think the percentages are close enough to warrant bothering. If they threw Yosprala into the mix, they’d have to prove they could pull in at least 25% as much revenue (plus a few % points more to offset Vimovo and the Canadian drug market + Fibricor in the US)
So I’m not sure it’s so much the company ownership % that is the problem here for the merger, but the new business activity rules.
By my calculations:
Pozen Revenue (per annum projected): 5.82M x 4quarters = $23.28M USD
Tribute: 9M x 4 = 36M CAD x 75% US/CAD exchange = $27M.
Total Revenue = 27USD + 23.28USD = $50.28M USD
Combined US Revenue = 46.5% - Global revenue ( a couple of % points?)
Combined Canadian Revenue = approx 54% - global revenue (a couple % points?)
Combined Revenue from non-Europe business activities: 90%+
Not sure how ARLZ could claim 25% of their business is today in Ireland or even Europe. They might want to get there someday, but can’t see it now. So, as per my previous post, the S4 states that if ARLZ is to be taxed as a US company, TRX can terminate the merger agreement and POZN has to pay TRX $3.5M in compensation.
I think that’s it for Aralez. Could be wrong though. (Usually am about most things)