Pozen has formally selected Canada for its new headquarters after it merges with Canada-based Tribute Pharmaceuticals, abandoning plans for an Ireland base of operations that could give the combined company a lower tax rate but could also put it in the crosshairs of U.S. regulators trying to clamp down on corporate maneuvering to evade taxes.
Chapel Hill, NC-based Pozen (NASDAQ: POZN) has filed an amended merger plan with the SEC, and asked that the agency withdraw the merger plan filed in June. At the time, Pozen announced a $146 million stock deal to acquire Tribute (TSX VENTURE: TRX), a transaction that would form a new company called Aralez Pharmaceuticals with headquarters in Ireland. In connection with the deal, investment firm Deerfield is leading a syndicate of healthcare investors in committing up to $350 million to support the combined companies’ portfolio of heart drugs.
The shift from Ireland to Canada is not a complete surprise. Pozen announced last month that it was still committed to a merger with Tribute, but it would consider Canada instead of Ireland for its headquarters following the U.S. Treasury Department’s announcement of additional rules intended to limit so-called tax inversions. Under current law, if U.S. shareholders own 80 percent or more of a foreign company, the Treasury Department considers that company a U.S. company for tax purposes—regardless of the corporate address. In some cases, companies “stuff assets” into a foreign company, making the foreign entity appear bigger in order to avoid the 80 percent rule. The department clarified that its 80 percent rule applies to any assets that are acquired to boost a foreign company’s ownership.
The Treasury Department also announced a second rule to address mergers with foreign companies that result in the companies cherry-picking a third, lower-tax country for its headquarters. The Treasury’s new rules say that when a parent company is based in a third foreign country, that parent company’s stock won’t be included when calculating ownership. That interpretation means that shareholders calculated for tax purposes could push a company’s U.S. ownership stake above that 80 percent threshold, making a company subject to U.S. taxes.
When I spoke with Pozen CEO Adrian Adams about the merger plans in June, he said that Ireland’s lower tax rate was not the primary driver for establishing Aralez’s headquarters, but it was an “added benefit.” The main reason for an Ireland headquarters, he said, was to support the company’s growth in Europe, and beyond.
But in a new statement today, Pozen and Tribute now say that choosing Canada over Ireland for the Aralez headquarters is “in the best interest of their respective security holders.” The companies don’t detail the U.S. tax implications of a move to Ireland, but they say a Canada headquarters offers similar taxes to Ireland, and that Aralez will benefit from Tribute’s established presence in Canada, where Tribute has always operated. The companies now expect to close the transaction in the first quarter of 2016.
Adams is gearing up the combined companies to commercialize an aspirin combination pill called Yosprala, whose delayed-release mechanism is intended to offer the heart-protective benefits of aspirin in a manner that’s safer for the stomach. Pozen is currently awaiting an FDA decision on whether to approve the drug for secondary prevention of cardiovascular disease—a measure to help protect people who have had a heart attack or stroke from having another one.
Photo of aspirin pills courtesy of Flickr user cpradi via a Creative Commons license.