The U.S. Treasury Department’s crackdown on tax-avoiding corporate inversion deals and “earnings stripping” is unlikely to hurt Concordia Healthcare Corp., and may actually improve its competitive position.
RBC Capital Markets analyst Douglas Miehm doesn’t think the issues that forced Pfizer Inc and Allergan plc to abandon their US$160 billion are relevant to Concordia.
The Treasury Department said on Monday that it will prevent companies from doing inversions if they’ve already conducted such a deal in the past three years.
Since Concordia’s most recent two acquisitions (U.K.-based Amdipharm Mercury and Swiss-based Covis Pharma) were not U.S. companies, Miehm noted that any equity issued in relation to these deals would not count under a future inversion of a U.S. company. That’s assuming Concordia even wanted to pursue such a deal.
“Previous acquisitions in the U.S. have not involved companies but products and as such do not fall under the regulation,” the analyst said in a note to clients.
The U.S. Treasury also wants to target deals that increase related-part debt that does not finance new investment in the U.S.
Miehm spoke with Concordia’s management about this issue, and noted that all of the company’s debt is held in the U.K. and Barbados. None is held in the U.S.
“As such, the company is not using U.S. inter-company debt to reduce U.S. taxable income and therefore this proposal should have no impact on operations,” the analyst said.
“In total, neither of the key announcements from the US Treasury yesterday impact Concordia’s operations,” he added. “In fact, Concordia appears to be better positioned than many of its competitors.”