The tax-free treatment of the spinoffs Dow Chemical (NYSE:DOW) and DuPont (NYSE:DD) 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 tell Reuters.
Unlike last month's Pfizer-Allergan merger, where tax savings are the result of Pfizer redomiciling to Allergan's home base of Ireland in an inversion, the Dow-DuPont tax savings hinge on the deal structure as a merger of equals, a rare event that requires companies of the same size and scope, tax experts say.
Companies that have been through a change of control typically are liable to pay capital gains taxes on subsequent spinoffs; Dow and DuPont plan to create three publicly-traded businesses and plan to argue that no change of control will have occurred by structuring their initial deal as a merger of equals.
Bolstering their view that a change of control has not occurred is that the two companies have many shareholders in common: Vanguard, State Street, Capital World Investors and BlackRock are, in that order, the top holders of both companies' stock.
Dow and DuPont have not disclosed estimates for tax savings, but people familiar with the deal say the savings will far exceed the $3B in annual cost synergies the companies expect.
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