Activist investors pushing for tax-inversion deals

August 4, 2014, 1:12 PM UTC
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Kyle Bean for Fortune

Activist investors are pushing for more tax inversion deals, looking to build a company’s value by trading the U.S. corporate tax rate from a lower one abroad.

Marcato Capital Management is the latest activist investor to join to tax-reduction trend. The investment firm is drawing interest from U.S. companies that may be interested in buying U.K.-based InterContinental Hotels Group (IHG), reported the Wall Street Journal.

Marcato’s campaign echoes that of other recent activist efforts, including Jana Partners push for Walgreen (WAG) to buy the rest of European drug store Alliance Boots and Bill Ackman’s campaign for Canadian drug company Valeant Pharmaceuticals (VRX) to take over California-based Allergan (AGN).

All the above deals, known as tax inversions, aim to take advantage of lower tax rates overseas to build shareholder value and boost profits. Corporate tax rates in the U.K. and Canada are a fraction of the U.S.’s 35% rate, and by buying a company in one of those areas a U.S. firm can relocate its headquarters to the new country and almost immediately cut its tax liabilities.

Activists have long pushed for deals that would save companies money through more tax efficient structures, such as having restaurant chains spin off their real estate into tax-advantaged real-estate investment trusts.

There has been popular pushback to these deals. President Obama called on Congress to pass legislation to stem the tide of companies fleeing U.S. oversight for lower taxes abroad, while others, such as Fortune’s Allan Sloan, have called the practice un-American.

Marcato, along with many companies pursuing these deals, don’t see the rules for tax inversions changing any time soon despite popular rhetoric. There has been speculation that U.S. hotel chains Starwood Hotels & Resorts Worldwide (HOT) or Wyndham Worldwide (WYNN) could be interested in InterContinental, though no deal is on the table, yet.

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