Monsanto seeks cost-saving tax inversion
U.S. agricultural and crop chemicals giant Monsanto (MON) could shift its headquarters to Europe in a tax-savings strategy if the company succeeds in its $45 billion unsolicited bid to merge with rival Swiss rival Syngenta.
Details of the tentative plan came Monday as Syngenta reiterated its opposition to the transaction, and released copies of Monsanto correspondence containing specifics of the proposal.
In an April 18 letter to Syngenta officials, Monsanto CEO and Chairman Hugh Grant wrote “we propose to combine the two companies under a newly-formed parent company, domiciled in the U.K.,” a shift that would “create a new global enterprise focused on future growth across all geographies, as well as provide additional synergies.”
Such so-called tax inversions enable U.S. companies to reduce their future tax bills by reincorporating their headquarters in lower-tax jurisdictions overseas while leaving their current domestic operations in place.
A surge of corporate inversions last year drew criticism from President Obama, who argued that companies involved were unfairly “gaming the system,” and potentially eroding the federal tax base. Reacting to the proposals, the Department of the Treasury in September enacted new rules designed to make corporate inversions less profitable and harder to execute.
The written confirmation of St. Louis-based Monsanto’s plans drew immediate criticism from a senior Washington Democrat who has joined other party members in proposing legislation aimed at blocking inversions. Capitol Hill Republicans, who control both houses of Congress, have argued that the issue instead should be addressed as part of a broad overhaul of the nation’s tax system.
“It’s clear that Monsanto – a company that has prospered and expanded in large part due to U.S. taxpayer-funded programs and services – intends to reincorporate overseas as part of its proposed acquisition of Syngenta in order to avoid paying U.S. taxes,” said Sen. Richard Durbin, D-Ill. “Hundreds of millions of dollars that could be invested in the infrastructure, education and research that companies rely on will be lost if Monsanto is allowed to go through with this corporate inversion scheme.”
The likely fate of the potential merger remains uncertain.
Syngenta Chairman Michel Demaré and CEO Michael Mack on Monday wrote to company shareholders that the only change in Monsanto’s updated proposal was “addition of “a wholly inadequate reverse regulatory break fee.”
“As such, we have reiterated our prior rejection of Monsanto’s proposal,” wrote Demaré and Mack.
They also contended any merger of the industry giants would face steep regulatory hurdles. Syngenta and its shareholders additionally would suffer financial harm if a transaction were announced and not finalized, the officials wrote.
However, Monsanto signaled plans to continue the pursuit.
“If people view our Syngenta proposal as tax driven, it misses the vision of what we intend to unlock,” said Sara Miller, a company spokeswoman. “This is about creating a new company focused on increased innovation and expanded global reach to support farmers around the world.”
The company posted on its corporate website a detailed presentation that said an official merger plan, if announced and approved, would offer a “unique opportunity to maximize value for shareowners of both companies.”
“It is clear to us, based on feedback from your shareholders and ours, that there is broad-based support for our proposal from both shareholder groups,” Grant wrote in a Saturday letter to Syngenta officials.
Monsanto shares closed up fractionally at $113.92 in Monday trading. Syngenta shares fell 1.62% to 406.10 Swiss francs in SIX Swiss Exchange trading.
