A 'Who's Who' of Tax-Domicile Targets

 | Jun 16, 2014 | 7:32 AM EDT  | Comments
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That's it, I have had enough. With today's Medtronic (MDT)-Covidien (COV) tie-up, it pays to just explore the lunacy of what's known as tax inversion and come up with a "who's next" list of takeover targets.

Even though Covidien is ostensibly located in Mansfield, Mass., its principal executive office is listed as 20 Lower Hatch Street, in the fine city of Dublin, Ireland. While I have been recommending Covidien ever since the break-up of Tyco (TYC), in part because of a series of terrific patient-monitoring and blood-flow devices, it appears that Lower Hatch Street address in Dublin was the main reason it got a bid from Medtronics. Why not? As long as 20% of the new shares go to the acquired company, a huge amount of taxes are saved, and overseas cash can be deployed in a much more tax-efficient manner, given the high U.S. corporate tax rate.

So let's figure out, using that pattern, what's going to happen next.

Located not too far down the road from Covidien is Eaton (ETN), a terrific electronics company that's known for fantastic products in everything from lighting and the electric grid to aerospace and trucking. Yep, you may have thought that Eaton was the corporate pride of Cleveland, Ohio, not unlike the Cleveland Browns, Cavaliers or the tribe itself. Wrong! Eaton is located at Fitzwilliam Hall, Fitzwilliam Place, Dublin 2, Ireland. I stayed at the Four Seasons in Dublin once. Had I timed it better, I could have gone to Eaton's annual meeting, which gets held there.

I think Emerson (EMR) or Honeywell (HON) could save themselves a heap of taxes by buying Eaton. It has the added advantage, like Covidien, of being a terrific company, too.

Covidien is a function of a spin-off from Tyco, not unlike TE Connectivity (TEL), the old AMP. You know AMP, don't you? It's the proud Pennsylvania connector company that was purchased by Tyco for $11 billion back in 2003, during the heyday of convicted felon Dennis Kozlowski. Did you know that TE Connectivity is actually located on Rheinstreasse 20, CH 8200 in Schafhausen, Switzerland?

I can't think of a better place for Washington, D.C.-based Danaher (DHR) to relocate to, can you? The fit is pretty darned perfect, too, given all of that instrumentation that Danaher has.

Or would it be better if it bought Pentair (PNR)? That's another Schafhausen, Switzerland company that also has a U.S. presence in Minneapolis, Minn. That fluids-control business of Pentair's is a difference-maker, although it doesn't make as big a difference as the tax domicile does.

The old joke about Chicago Bridge & Iron (CBI) is that it doesn't make bridges or iron and isn't located in Chicago. You might have thought it was located in Houston, Texas, at One CB&I Plaza. Looks like the punchline of that old joke is wrong, too, because CBI is located in The Hague, Netherlands. How convenient is that for a company such as Fluor (FLR)? That firm is ostensibly located right down the road, in Irvine, Texas, and could certainly pick up this competitor.

This game can and will go on and on. Tyco, now a fire-and-prevention company, would fit well into the stable of Honeywell or DuPont fire-and-safety divisions. Moreover, Tyco is headquartered in Neuhausen, Switzerland.

How about Alkermes (ALKS)? This is the terrific drug company that is working on a ton of amazing treatments for mental illnesses, and it happens to be located on Burlington Road in Dublin, unless you are counting the Waltham, Mass., facility. There are lots of U.S. companies that could save a boatload giving 20% of a combined entity to that $6 billion company.

Furthermore, please don't forget those fabulous Geneva- and London-based oil-services companies, Weatherford (WFT) and Ensco (ESV). Do you think it matters that Weatherford is named after Weatherford, Texas, where the company was founded, or that its operational office is currently located in Houston? Do you think it matters that Ensco is a Dallas company that has said it will put "a large number" of people in London?

Yep, we could go on and on. All I can say is that every one of these "real" American companies is now a candidate to be bought because of the tax-code ridiculousness and the seriousness of avoiding taxes. If Pfizer (PFE) had wanted AstraZeneca (AZN), and if Medtronics has gotten Covidien, you can bet that any one of these companies could be next.

I know it is silly, but there is some truly non-silly money to be made going virtual globe-trotting while never having to leave home, except to pick up the mail.

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