After Medtronic, who else will skirt US taxes?

This game can and will go on and on as other 'American' companies become buyout candidates because of the ridiculous US corporate tax code.

By Jim Cramer Jun 16, 2014 11:47AM

Medical device maker Medtronic’s logo reflects in pond outside corporate headquarters © Jim Mone/AP PhotoThat's it, I've had enough. With the Medtronic (MDT)-Covidien (COV) deal, it pays to explore the lunacy of what's known as tax inversion and come up with a "who's next" list of takeover targets. The Street on MSN Money


Even though Covidien is ostensibly in Mansfield, Mass., its principal executive office is listed as 20 Lower Hatch Street, in the fine city of Dublin, Ireland. While I have been recommending Covidien ever since the breakup of Tyco (TYC), in part because of a series of terrific patient-monitoring and blood-flow devices, it appears that the Lower Hatch Street address in Dublin was the main reason it got a bid from Medtronic. Why not? As long as 20 percent of the new shares go to the acquired company, a huge amount of taxes are saved and overseas cash can be deployed in a much more tax-efficient manner, given the high U.S. corporate tax rate.


So let's figure out, using that pattern, what's going to happen next.


Not too far down the road from Covidien is Eaton (ETN), a terrific electronics company that's known for fantastic products in lighting, the electric grid, aerospace and trucking. Yep, you may have thought Eaton was the corporate pride of Cleveland, Ohio, not unlike the Cleveland Browns, Cavaliers or the tribe itself. Wrong! Eaton is at Fitzwilliam Hall, Fitzwilliam Place, Dublin 2, Ireland. I stayed at the Four Seasons in Dublin once. Had I timed it better, I could have gone to Eaton's annual meeting, which gets held there.


I think Emerson (EMR) or Honeywell (HON) could save itself a heap of taxes by buying Eaton. It has the added advantage, like Covidien, of being a terrific company, too.


Covidien is a function of a spin-off from Tyco, not unlike TE Connectivity (TEL), the old AMP. You know AMP, don't you? It's the proud Pennsylvania connector company that was purchased by Tyco for $11 billion back in 2003, during the heyday of convicted felon Dennis Kozlowski. Did you know that TE Connectivity is actually on Rheinstreasse 20, CH 8200, in Schafhausen, Switzerland?


I can't think of a better place for Washington, D.C.-based Danaher (DHR) to relocate to, can you? The fit is pretty darned perfect, too, given all of that instrumentation that Danaher has.


Or would it be better if it bought Pentair (PNR)? That's another Schafhausen company that also has a U.S. presence in Minneapolis, Minn. That fluids-control business of Pentair's is a difference-maker, although it doesn't make as big a difference as the tax domicile does.


The old joke about Chicago Bridge & Iron (CBI) is that it doesn't make bridges or iron and isn't in Chicago. You might have thought it was in Houston, Texas, at One CB&I Plaza. Looks like the punchline of that old joke is wrong, too, because CBI is in The Hague, Netherlands. How convenient is that for a company such as Fluor (FLR)? It is ostensibly right down the road, in Irvine, Texas, and could certainly pick up this competitor.


This game can and will go on and on. Tyco, now a fire-and-prevention company, would fit well into the stable of Honeywell or DuPont fire-and-safety divisions, and Tyco is in Neuhausen, Switzerland.


How about Alkermes (ALKS)? This is the terrific drug company that is working on a ton of amazing treatments for mental illnesses, and it happens to be on Burlington Road in Dublin, unless you are counting the Waltham, Mass., facility. There are lots of U.S. companies that could save a boatload giving 20% of a combined entity to that $6 billion company.


And please don't forget those fabulous Geneva- and London-based oil services companies Weatherford (WFT) and Ensco (ESV). Do you think it matters that Weatherford is named after Weatherford, Texas, where the company was founded, or that its operational office is in Houston? Do you think it matters that Ensco is a Dallas company that has said it will put "a large number" of people in London?


Yep, we could go on and on. All I can say is that every one of these "real" American companies is now a candidate to be bought because of the ridiculous U.S. tax code and the seriousness of avoiding taxes. If Pfizer (PFE) had wanted AstraZeneca (AZN), and if Medtronic has gotten Covidien, you can bet any one of these companies could be next.


I know it's silly, but there is some truly non-silly money to be made going virtual globe-trotting while never having to leave home, except to pick up the mail.


Jim Cramer


Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio for the stocks Cramer thinks could be winners. The portfolio is long ESV




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16Comments
Jun 16, 2014 12:31PM
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If I could do the same thing with personal income taxes I'd domicile in Dublin too.
Jun 16, 2014 12:11PM
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that's actually a nice list of potential targets cramer came up with.  and the premise of avoiding usa taxes could be motivation along with the decent products these companies all make. 

 

meanwhile, we're finding out at my current place, that the costs of an operation in Europe are far higher than usa.  so even if/when everyone buys out Europe corporations, they will still send the manufacturing to china for cost cutting

Jun 16, 2014 12:39PM
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I thought the Corporate tax overhaul and stopping of subsidies to large corporations was something BOTH parties campaigned on in 2012 and what has Congress done? Matter of fact, what has Congress accomplished this year? It is already June....
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If company does not pay US taxes they can not operate and make money off US citizens

that simple.

This is more proof our leaders are selling us down the river.

Jun 16, 2014 12:09PM
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Yup it's good for our investments in the med-device world and MDT....

But I surely hate to see American companies doing this...Where does it stop...??

Jun 16, 2014 3:31PM
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Shame on any company that does things to avoid taxes.Living in America is the envy of most of those that live outside America.Company's receive many tax breaks. The so-called high corporate tax is a farce.After receiving tax breaks those corporations pay a fair share.If my understanding about corporate taxis is wrong please show me the truth and forgive me if I am wrong. Thank you.l
Jun 16, 2014 12:54PM
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Personal responsibility is one of those way far long ago ideas like autonomy and taking care of your family and neighbors.   Why that is just total socialism making Internationals pay tax on their income.  Propaganda like there are "no good workers here" so there is no reason to or hire the dead beats or pay a decent wage.  Next time these Internationals say one word just invite them to leave.  They should try living somewhere in the Asian rim countries to give them a taste of how America will be in twenty years after they get done raping everyone they can here.  Never met a politician that didn't like to make promises they wouldn't keep.  The thrill is making up a story about how they couldn't keep em.  Now even the Pope is saying we are doomed because of the corruption these people have wrought around the world.
Jun 16, 2014 7:25PM
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I don't understand whats so hard about just paying the tax. The customer that buys some of these lowsy products has to pay sales tax on them Med Tronix for instance makes rather expensive bed scales for folks to fat to climb out of bed. Not a product EVERY American is going to used. Only the folks over 500LBS.
Jun 16, 2014 10:28PM
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The answer:

Everyone except the American worker.

Jun 16, 2014 3:26PM
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what part of 'making money ' is it that you don't understand.


same as drug wars.  it isn't the drug lords that are the problem its the demand in the states that is the problem.


companies like taxes,  they don't like the crazy spending that makes those taxes high and out of sight.


look to your reps to fix this issue.  good luck.

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