Monsanto Co.’s plan to acquire Swiss chemical maker Syngenta AG and incorporate the combined company in the U.K. would be one of the largest U.S. tax inversions ever, potentially cutting its taxes by more than $500 million.
Monsanto, in an April 18 letter to Syngenta released Monday, said it would combine the companies under a new parent in the U.K. partly to create “additional synergies.” The move could allow St. Louis-based Monsanto to shift most of its U.S. earnings to the low-tax jurisdiction of the U.K., cutting its tax bill, Robert Willens, a New York-based tax consultant, said Monday.
Monsanto’s $45 billion buyout offer, which would combine its leading franchise in genetically modified crops with the world’s biggest maker of agricultural chemicals, isn’t driven by tax savings, the U.S. company said in an e-mail statement. Still, the inversion could nearly halve Monsanto’s effective tax rate, reported at 28 percent last year, Willens said.
“If they were reasonably aggressive, I bet they could bring it down to about 15 percent without a problem,” Willens said by phone. “That is typical of how an inverted company could affect its tax rate.”
Tax inversions are under scrutiny in the U.S. Congress after a rash of recent deals sought to reincorporate American companies in lower-tax countries. Monsanto would have saved more than $500 million last year by reducing its effective tax rate to 15 percent, Willens said. Syngenta, based in Basel, had an effective tax rate of 14.7 percent.
Monsanto said on Sunday it’s willing to pay a $2 billion breakup fee if regulators reject the deal, and it reiterated plans to sell overlapping seed and chemical units to overcome antitrust objections. On Monday, Syngenta called the breakup fee “paltry” and said the planned divestitures don’t resolve the regulatory issues.
Monsanto, with a market value of $54.3 billion, would be the second-biggest U.S. tax inversion after Medtronic Inc. reincorporated in Ireland with its takeover of Covidien Plc, according to data compiled by Bloomberg. Bigger deals have been proposed but not completed.
“If people view our Syngenta proposal as tax driven, it misses the vision of what we intend to unlock,” Sara Miller, a Monsanto spokeswoman, said in the statement. “This is about creating a new company focused on increased innovation and expanded global reach to support farmers around the world.”
Most companies achieve inversion by acquiring a foreign company at least 25 percent of their size. It’s common for companies to keep their top executives in the U.S., and Monsanto expects St. Louis will continue “to serve as our global ag innovation hub,” Miller said.
Incorporating in the U.K. is in response to Syngenta’s request for a neutral corporate location and that proposal is subject to further negotiations, she said.
Senator Richard Durbin called on Congress to pass legislation that would make it more difficult for companies to incorporate abroad to avoid taxes.
“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 Democrat from Illinois said Monday in a statement.
In May, Syngenta rejected Monsanto’s 449 franc ($483) a share bid, with 45 percent payable in cash, saying it undervalued the company and doesn’t sufficiently compensate for antitrust risks. The bid represented a 43 percent premium to Syngenta’s share price at the close on April 30, just before Bloomberg News reported the proposal.
Monsanto told Syngenta in a June 6 letter that it’s looking to obtain some due diligence information so it can consider refining the value of its offer.