This is a column about how dysfunction in Washington is handing billions over to Wall Street while threatening thousands of jobs on the Central Coast.
Just a year ago, Allergan shut its Goleta breast implant operation after it came under siege from corporate raiders, Activis, a New Jersey-based company that used an acquisition in Ireland to shift its home base and avoid billions in taxes. Activis gobbled up Allergan, based in Irvine, shut the Goleta operation and, presto, changed its name back to Allergan. The jobs? They’re still gone.
The government raised a stink about these so-called “tax inversions” and the furor died down. That was until Aug. 4 when Shire, another Irish drug maker, proposed a hostile takeover of Baxalta, a company that has been in existence for just 30 days.
Baxalta was created in early July when Baxter International spun off its hemophilia and related enterprises into a new company.
The Baxalta operations include Baxter’s former administrative, research and sales operations in Thousand Oaks and a manufacturing operation nearby in Newbury Park. Together they employ around 2,000.
Shire, taking a page from the Activis playbook, stunned the markets with a $30 billion bid for Baxalta that could well go higher.
The Shire bid is a stock-for-stock exchange that would value Baxalta at $45.23 per share, or 36 percent more than the closing price on Aug. 3.
Bloomberg News speculated that Shire, which benefits from low tax rates, was making the move to head off a takeover bid from another large drug maker.
Shire said that it wanted to create a global drug powerhouse focusing on rare diseases, an area where Baxalta has considerable expertise.
Because the Ventura County operations focus on treatments for hemophilia and blood-related diseases, they are important to Baxalta, which counts on hemophilia treatments for about half of its sales.
But the bottom line here is taxes. The tax rate paid by Allergan, formerly Activis, is around 17 percent compared to 25 percent or more for “old’ Allergan, before the job cuts and tax inversion takeover.
According to the Organization for Economic Cooperation & Development, Ireland, at 12.5 percent, has the lowest corporate tax rate in the industrialized world while the U.S. federal income tax of 35 percent is among the highest.
With tax loopholes and other gimmicks included, a benchmark tax rate for large U.S. corporations is around 25 percent of profits; toss in state taxes and the maximum tax rate is closer to 40 percent.
Relatively high U.S. corporate income taxes are one reason why corporations like Amgen, based in Thousand Oaks, have billions of dollars stranded in Europe and Asia that they are loath to repatriate.
The sensible thing would be to reduce U.S. corporate taxes to the international average, close a bunch of loopholes to make it revenue neutral and let U.S. companies operate without fear of tax inversion takeovers or crazy borrowing schemes to avoid repatriating dollars.
But common sense has gone AWOL in Washington.
The real price is being paid by Allergan employees who lost their jobs in Goleta and the Baxalta workers who are now facing an uncertain future.
• Reach Editor Dubroff at [email protected]