What good does tax inversion do us?

The Americans are at it again. US tech firm Arris buys TV set-top box maker Pace for $2.1bn in tax inversion deal.

by Adam Gale
Last Updated: 23 Apr 2015

Pace, Yorkshire’s – and indeed the world’s – largest manufacturer of TV set-top boxes, has been bought by American telecoms equipment firm Arris for $2.1bn. The combined firm, ‘New Arris’ (clearly there were slim pickings in the ‘what shall we call ourselves now?’ brainstorming session) will be incorporated in the UK, in a sign that the whole Shire-AbbVie takeover fail last year didn’t signal the end of transatlantic tax inversion deals after all.

Arris will pay Pace shareholders £1.325 in cash and 0.1455 New Arris shares for each Pace share, meaning Pace shareholders will own approximately 24% of the combined company when the deal is completed in July.

The firm will continue in effect to be based in Georgia, USA, but will benefit from the UK’s lower corporation tax rate. Arris, estimates it will pay 26% when all’s said and done, compared to 35% now. There are other reasons for the takeover from Arris’ point of view – it wants into the satellite and international markets, for instance – but clearly this massive tax cut won’t hurt.

But is the deal good for Pace, or indeed for the UK? Pace has wanted to expand in order to reduce its reliance on set-top boxes, which are facing increasing competition from internet television and streaming services. Indeed, in 2013 it spent $310m acquiring American equipment manufacturer Aurora. The tie up with Arris fits Pace’s expansion plans and then some.

It’s also getting top dollar for its shares. Arris’ offer is 28% above the market price for Pace shares as of yesterday, though it’s since risen 33% to 444p this morning.

Seen more widely, the Exchequer will no doubt be pleased to receive tax revenues from New Arris, which is projected to have revenues of $8bn. In a sense, it’s a vindication of the Coalition’s policy of reducing the UK’s corporation tax rates to attract inward investment.

On the other hand, it’s not as though the deal will create any jobs in Britain (what, not even a single tax accountant?). Indeed, one of the big reasons Arris gave for the takeover was ‘significant synergies’, raising the possibility that jobs could actually go at Pace and/or be shipped back to Georgia.

Being the Luxembourg of the G7 has its advantages, but it makes it harder to complain about the Duchy poaching the UK’s tax revenues from American multinationals when Britain’s doing the same to the US. Presumably this deal is too small for Barack Obama to fire a shot from his tax inversion cannon across Arris' bows.

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