US drug company pays premium for tax haven with $8.6bn Irish takeover

Michigan-based Perrigo expected to move to Republic of Ireland HQ after acquiring pharmaceuticals maker Elan

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A US pharmaceutical company has agreed to buy Irish drug maker Elan for $8.6 billion (£5.6 billion), in a deal which will allow it to slash the amount it pays in tax almost in half.

Michigan-based Perrigo will be able to move its tax domicile to a new joint headquarters in the Republic of Ireland, making it subject to just 12.5 per cent corporation tax, compared to the 35 per cent rate imposed in America.

The acquisition has been hotly contested, with Elan having already rejected three lower bids from investment firm Royalty Pharma, also from the US.

Perrigo, a company worth around $12 billion which makes over-the-counter drugs for in-shop brands, said the acquisition would lower its effective tax rate from around 30 per cent now to somewhere in the high teens.

Chief Executive Joe Papa said: “We think it's financially compelling and when you put it together with an Irish domicile that has operational tax synergies, we think it's a really compelling story.”

The deal also gives Perrigo the rights to royalties on the highly successful multiple sclerosis drug Tysabri.

Elan sold its 50 per cent interest in Tysabri to U.S. partner Biogen Idec in February for $3.25 billion but retained the royalty rights in the drug, sales of which rose to $1.6 billion last year.

Perrigo will pay around 10.5 per cent over the Irish company’s share price at the close of trading on Friday.

”Elan has uncovered an excellent offer for its shareholders, substantially ahead of the level Royalty Pharma could achieve,“ Berenberg Biotech analysts said.

The US firm follows in the footsteps of hundreds of others who have subsidiaries in Ireland for tax purposes. Fellow drugmaker Actavis' $5 billion acquisition of Dublin-based Warner Chilcott in May allowed it to cut its tax rate to 17 per cent from 28 per cent.

The practice has prompted international criticism since the US Senate revealed that technology giant Apple paid little or no tax on tens of billions of dollars in profits channelled through the country.