In a bid to diversify its portfolio and save taxes,
) entered into a definitive agreement to merge with Canadian entity
) in an all stock deal. The deal, cleared by the boards of
directors of both companies, is expected to close by year end.
Shares of QLT were positively impacted by the news.
The deal has been structured in a complex manner. According to the
terms of the deal, shareholders of the U.S. based specialty
biopharmaceutical company, Auxilium, will receive 3.1359 shares of
QLT for each share currently held by them following the closure of
the transaction. According to the press release, the deal offers a
premium of 25% for QLT stockholders on the basis of the Jun 25
closing prices of Auxilium and QLT on the Nasdaq.
Shareholders of Auxilium will own 76% of the combined entity and
the rest will be held by QLT stakeholders. Shares of the combined
entity will trade on the Nasdaq. The board of directors of the
merged entity, New Auxilium, will include the Auxilium board along
with two members from QLT's existing board.
Primary Motive to Save Taxes
New Auxilium will be based in British Columbia, Canada. The
relocation of headquarters will enable Auxilium to significantly
reduce its tax liabilities. In the event of the deal going through,
Auxilium stated that its long-term effective tax rate could be
reduced from the high 30s to mid 20s (in percentage) or even lower
since the U.S. corporate tax rates are much steeper.
A Trend in Vogue
Auxilium is not the only U.S. company looking to cut its tax
expenses through an impending merger. The practice of reducing tax
liability by making an international acquisition and shifting the
base there is quite prevalent among U.S. companies. Late last year,
) relocated its headquarters to Ireland by acquiring Elan, thereby
avoiding U.S. corporate tax obligations. The acquisition of Warner
Chilcott by Actavis in 2013, leading to the formation of
), also held tax-saving attractions.
QLT carries a Zacks Rank #4 (Sell), while Auxilium is a Zacks Rank
# 5 (Strong Sell) stock. A better-ranked stock in the healthcare
), sporting a Zacks Rank #1 (Strong Buy).
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