Gov't Pensions Make Big Bucks Off 'Corp Deserters'

It’s not just fat cat hedge funds, banks or Wall Street investment companies that benefit when U.S. companies cut their tax bills by moving their headquarters overseas via mergers with foreign concerns.

More than a dozen state government pension funds that run retirement accounts for government workers like teachers, cops and firemen own big chunks in these “corporate deserters,” too.

Five U.S. companies merging with overseas concerns have big state government pension investments amounting to nearly $2 billion, based on data provided by Richard Peterson, senior director at S&P Capital IQ.

But you don’t hear about government pension investments in the criticism about this tax-cutting move from Democrats in Congress and the president, who have repeatedly called companies seeking to reduce their high U.S. corporate taxes “corporate deserters” who are moving jobs overseas, destroying the middle class and ruining the U.S. corporate tax base (the government estimates $20 billion over 10 years is at stake here).

The OECD says the U.S. corporate tax rate is the highest in the world, higher than what many European companies pay, which economists note is cutting into U.S. job growth. That’s why there is a bipartisan push for U.S. corporate tax reform.

To be sure, $2 billion is a drop in the ocean of government pension fund assets. The current value of Calpers’ assets alone is estimated at $301 billion. But the corporate inverter stakes are part of the controversy of D.C. pressuring Wall Street fat cats while overlooking discomfiting government pension investments.

State government workers have invested in several corporate inverters, including: Mylan Labs, which is buying Abbott Laboratories’ non-U.S. generic drugs business for $5.3 billion, with the new entity based in the Netherlands; Walgreen Co, (NYSE:WAG) which is buying a $6.7 billion stake in Switzerland’s Alliance Boots and may move to Switzerland if it buys the rest of the company; Medtronic, which is buying Dublin-based Covidien for $42.3 billion; Applied Materials, which bought Tokyo Electron Limited for $9.4 billion, with the merger, Eteris, based in the Netherlands; and Illinois-based AbbVie’s $54.9 billion acquisition of the U.K. drug maker Shire PLC, which “ranks as the largest announced to date corporate inversion deal,” and will be based in Great Britain, S&P Capital IQ’s Peterson says.

Government worker pension funds for Ohio, California, New York, New Jersey, and teacher funds in California and New York have invested in all of these U.S. “corporate inverters.” Other state government pension funds from Kentucky, Arizona, Virginia and Texas have also each piled into individual names.

Calpers, the New York State Common Retirement Fund, and California’s and New York’s teacher pension funds rank at the top of these companies’ biggest pension investors. State government pension funds own more than $1.14 billion in Walgreens, and $1.3 billion in AbbVie, S&P Capital IQ’s Peterson says.

Wall Street analysts already estimate that Walgreens could cut its U.S. tax bill by one-third with a merger that sits in Switzerland, or a projected $4 billion that could flow back to the bottom line over the next five years—helping the government workers’ return on their investments. When Applied Materials announced its deal for Tokyo Electron, it said that its effective tax rate would drop to 17% from 22% as a result, for an estimated savings of hundreds of millions of dollars annually.

Largest pension investors in AbbVie Inc.  

Largest pension investors in Walgreen Co. 

Mylan Inc.

Medtronic Inc.

Applied Materials