Dow, DuPont eye big tax savings in rare merger of equals

Tue Dec 15, 2015 7:04am EST
 
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By Greg Roumeliotis and Mike Stone

NEW YORK (Reuters) - The tax-free treatment of the spin-offs Dow Chemical Co and DuPont plan to carry out after they merge their businesses is a prime driver of the deal, potentially saving tens of billions of dollars, industry experts said.

The $120 billion merger, announced last week, comes less than a month after drug maker Pfizer Inc said it would use its $160 billion acquisition of Allergan Plc as a way to cut its taxes. It underscores the growing use of mergers and acquisitions as a way to slash corporate America's tax bill.

"The whole structure of this is very, very tax efficient and one of the reasons we are doing it this way, so very beneficial from that standpoint to the shareholders," DuPont CEO Ed Breen told analysts on Friday. "When I looked at every other strategic option to DuPont, there was nothing that came close to this."

Unlike the Pfizer-Allergan deal, where the savings are the result of Pfizer redomiciling to Ireland where Allergan is based in a so-called inversion, the Dow-DuPont tax savings hinge on their transaction being structured as a merger of equals, a rare event that requires companies of the same size and scope willing to negotiate it, according to tax experts. Both companies are now valued at about $60 billion each.

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The Dow logo is seen on a building in downtown Midland, Michigan, in this May 14, 2015 file photograph. REUTERS/Rebecca Cook