CF, OCI Amend Merger Agreement to Keep 'Inversion' Tax Benefit -- 2nd Update

By Lisa Beilfuss And Marie Beaudette

Fertilizer maker CF Industries and Dutch rival OCI NV, which agreed to merge in August, said they would move the tax residency of the combined company to the Netherlands from the U.K., in a move to satisfy inversion rules put in place by the U.S. Treasury.

The $8 billion tie-up is a so-called tax-inversion deal that would create a global nitrogen-fertilizer giant with a significantly lower tax bill. When the deal was signed, Illinois-based CF said it would lower its overall tax rate to 20% from 34% by moving its address to the U.K. In the Netherlands, the corporate tax rate is 25%.

Inversions have helped drive mergers-and-acquisitions activity to record highs as companies have looked to foreign deal making for tax savings. In November, the U.S. Treasury unveiled new rules that beefed up existing laws governing inversion deals.

They also have drawn criticism from lawmakers and presidential candidates, and the U.S. Treasury has unveiled new rules twice since September 2014 meant to curb them.

The latest, in November, snagged CF's deal. It limited the ability of U.S. firms to "country-shop"--that is, acquire a foreign target in one country but move to a different one. U.S. firms who want an inversion deal must now take the address of their foreign merger partner. That makes inversions harder to do by whittling the pool of merger partners to those in attractive jurisdictions.

The U.K. has been among the most popular inversion destinations because American executives are comfortable with its language and lifestyle and can benefit from its increasingly favorable tax rules.

The Netherlands, meanwhile, has been criticized for a corporate rule book that some say tilts too far in favor of management at the expense of investors. Drugmaker Mylan NV, which relocated to the Netherlands in February through an inversion, used an unusual takeover defense to repel a takeover bid from Teva Pharmaceutical Industries Ltd. last summer, evoking grumbles from some investors.

Last month, CF said it was committed to the transaction and was considering taking a Netherlands address.

The Treasury's new rules apply to deals in which the U.S. company's shareholders end up with more than 60% of the combined entity. Under the CF and OCI deal, CF shareholders would own more than 70% of the merged company.

By being a tax resident of the Netherlands, where OCI is incorporated, the new holding company would satisfy the requirements of the U.S. Department of the Treasury's notice issued on Nov. 19, CF said.

Taking the new Treasury rules into account, CF still expects roughly $500 million in annual cost savings, Chief Executive Officer Tony Will said on a call with analysts and investors. CF said the amended merger agreement doesn't affect timing of the deal's completion, which is expected by mid-2016.

Mr. Will said the combined company would have had profit generated in the Netherlands taxed at the Dutch tax rate before the Treasury rules prompted the change of address.

As a result of being a Dutch company, he said, "U.K. profits will not be double-taxed in the U.S. anymore"--taxed once in the U.K. and streamed back to the Netherlands. "The U.S. won't have any claim on being able to tax those profits."

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

December 21, 2015 17:55 ET (22:55 GMT)

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