Salix Pharma to buy Cosmo Tech, become latest US company to seek lower overseas tax rate

Shares of Salix Pharmaceuticals fell Wednesday before markets opened and a day after it announced plans to become the latest U.S. company to incorporate overseas and lower its taxes.

The Raleigh, North Carolina, company said Tuesday after markets closed that its planned, all-stock acquisition of Irish-based drugmaker Cosmo Technologies Ltd. will lower its long-term tax rate from the high 30 percent range to a low 20 percent span.

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Several large U.S. corporations plan to use mergers to reincorporate overseas in countries with lower tax rates. Under current law, a U.S. company that merges with a foreign entity can benefit from a lower foreign tax rate if shareholders of the foreign company own at least 20 percent of the new merged business.

These moves are raising concerns among some U.S. lawmakers, since they can cost the federal government billions in tax revenues.

Last month, U.S. medical device maker Medtronic Inc. said that it agreed to buy Ireland-based competitor Covidien for $42.9 billion in cash and stock. Another U.S. drugmaker, AbbVie Inc. also is trying to buy Shire PLC in a deal that would involve AbbVie reincorporating on the British island of Jersey, where Shire is headquartered.

Cosmo Technologies is a subsidiary of Italian specialty drugmaker Cosmo Pharmaceuticals SPA. Under the proposed deal, Salix shareholders will receive one share of the combined company — to be named Salix Pharmaceuticals PLC — for each share they currently own. Salix executives will run the combined company, and Cosmo will own slightly more than 20 percent.

The boards of both companies have unanimously approved the deal, which is expected to close in the fourth quarter.

In January, Salix Pharmaceuticals Ltd. completed a roughly $2 billion acquisition of drugmaker Santarus Inc., which sells the ulcerative colitis treatment Uceris.

Shares of Salix, which specializes in gastrointestinal disorder treatments, dropped $5.52, or 4 percent, to $131.75 in premarket trading Wednesday about an hour ahead orightf the market opening. The stock had already climbed 53 percent so far this year, as of Tuesday's close.