Steris Corp., an Ohio-based maker of hospital sterilization products, agreed to buy Synergy Health Plc for about 1.2 billion pounds ($1.9 billion) and move to the U.K. for tax purposes, a sign tougher rules against such transactions aren’t deterring some buyers.
Synergy holders will receive cash and stock valued at 19.50 pounds a share, based on the Oct. 10 closing price for Steris, the companies said in a statement. The price is 39 percent above Synergy’s closing level on that day.
Steris’s planned move to the U.K. comes less than a month after U.S. Treasury Secretary Jack Lew tightened rules around so-called tax inversions, in an bid to slow or stop the flow of companies that have deals to move overseas, lower their tax rate and gain access to overseas cash.
The Obama administration also wants to prevent companies from inverting by buying a smaller foreign business, but that requires congressional action and Democrats and Republicans have been unable to agree.
“There’s a lot of political noise around tax inversions, but this is primarily a U.S. company acquiring a company in the same space with a very good international presence,” Charles Weston, an analyst at Numis Securities in London, said about the transaction. “The deal makes sense even in the absence of tax advantages.”
Synergy, based in Swindon, England, provides sterilization services for medical-device manufacturers, hospitals and other industries. The combined company will be incorporated in the U.K., while its operational and U.S. headquarters will remain in Mentor, Ohio, the companies said.
Steris’ management said on a conference call that the new tax structure shouldn’t clash with U.S. regulations because the company doesn’t plan to use some of the techniques described by the Treasury Department when it announced steps to make it harder for U.S. companies to move their addresses abroad.
There have been 45 completed inversions since 1982. The planned Steris one is the second such deal disclosed since the Treasury Department’s new rules. Lodging company Civeo Corp. said on Sept. 29 would change its tax address to Canada. Including Steris, there are currently eight pending inversion transactions that are subject to a definitive agreement.
Steris will pay 4.39 pounds a share in cash and 0.4308 of a new Steris share for each Synergy one. The deal will bring together two complementary businesses and will lead to pretax cost savings of about $30 million annually, the companies said.
Synergy shares rose 31 percent to close at 18.40 pounds in London. Steris fell 1.4 percent to $55.60 at 11:50 a.m. in New York.
By incorporating in the U.K., the combined company will have a tax rate of about 25 percent beginning in fiscal 2016, according to the statement. The U.S. corporate income tax rate is 35 percent, and the U.S. is one of the few industrialized countries that taxes its companies’ foreign income.
Bankers from Lazard advised Steris, and Wachtell, Lipton, Rose & Katz and Jones Day provided legal advice. Investec Bank Plc acted as financial adviser to Synergy, with DLA Piper as legal counsel.