Corporate Inversions Destroy United States

Carl Icahn says his fears are coming true on corporate inversions

© Billionaire activist investor Carl Icahn attends the Leveraged Finance Fights Melanoma charity event…

Carl Icahn is trying his hand at political activism in working to rally Washington lawmakers against Pfizer’s prospective takeover of Allergan, which would come at an over $100 billion price-tag and shift the pharmaceutical giant’s headquarters to Ireland.

Icahn, one of Wall Street’s most feared investors, wants Congress to reform the corporate tax code, making it unnecessary for U.S. companies to flee to foreign shores in search of tax savings. It’s unfamiliar territory for the billionaire investor, who is best known for rallying shareholders against incumbent corporate boards and causing some of America’s largest companies to rethink the way they do business.

Earlier in October Icahn unveiled a $150 million Super PAC to push forward tax reform and combat so-called inversion deals, where U.S. domiciled companies buy firms in low-tax jurisdictions and shift their headquarters abroad. Icahn’s PAC is an attempt to stop the steady fleeing of American companies to countries such as Ireland, Switzerland, Britain and Canada. As many as 50 firms have done inversions over the past handful of years, and Icahn said last week he fears the biggest corporations in America, including Walgreens Boots Alliance, Monsanto, and Pfizer, are next.

Those predictions are already beginning to come to fruition.

On Thursday morning Pfizer confirmed it is talks to acquire Allergan, in a merger that would shift the New York-based company’s headquarters to Ireland. Roughly a year ago Pfizer abandoned its $118 billion purchase  of AztraZeneca, and inversion attempt that would have shifted its headquarters to Britain, but was quashed by a moratorium by the U.S. Department of Treasury.

Icahn, not one to sit idly by, is taking objection to Pfizer’s potential inversion even before a formal deal is laid out. However, instead of plowing billions into Pfizer or Allergan’s stock and running a shareholder campaign against a deal he deems objectionable — something Icahn did with Dell — he is looking to wield his influence in the Beltway.

On Thursday afternoon Icahn published a letter seeking to rally Democrats and Republicans to pass international tax reform legislation next month when Congress votes on a new Highway Bill. Said Icahn in letter:

The Highway Bill presents an immediately available opportunity to pass international tax reform that will stop inversions. In the conversations I had with many of you, there was universal agreement on this fact as well. But our window of opportunity is shrinking. The most recent short-term extension to the Highway Bill gives us only until November 20th to pass a long-term Highway Bill that includes the international tax reform necessary to stop further inversions. If a version of the Highway Bill passes without including this necessary tax reform, I fear we will lose many more iconic companies, such as Pfizer, in the months to come.

Icahn also questioned why draft legislation proposed by New York Senator Chuck Schumer and Ohio Senator Rob Portman, supported by new House speaker Paul Ryan, isn’t already included in the current Highway Bill. He exclaims:

“[W]hy is the Schumer/Portman framework not already included in the Highway Bill? It is my understanding that Speaker Paul Ryan, formerly Chairman of the Ways and Means Committee, and now Speaker of the House, continues to work with Senator Chuck Schumer and Senator Rob Portman on the details of applying their framework to the Highway Bill, and that they are actually very close to a deal, the terms of which will be acceptable to both parties.

To be seen is whether Icahn’s letter writing and activism has the same effectiveness in Washington as it does in Corporate America, where he’s considered among the most feared dissidents.

Allergan shares were trading higher by nearly 6% while Pfizer shares were falling by nearly 3%. So far, the market’s given a cold reception to what woulds be the biggest inversion in U.S. history.