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CF Industries pulls OCI takeover bid, after change in US tax rules

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A proposed deal between the US fertilizer companies CF Industries and OCI fell through, in the wake of US legislation designed to remove the tax incentives for mergers with overseas companies.

Illinois-based CF Industries was planning to take on OCI's North American and European plants for $6bn, as well as taking on $2bn of OCI's debt.

The move would have allowed for the ownership of CF Industries to pass to a new UK-domiciled entity, resulting in massive savings in corporation tax.

'Forced to re-evaluate'

But a recent shift in regulation has stripped away much of the potential benefits of these "tax inversion" deals.

"Although the original deal created significant value for both parties, changes in the regulatory and commercial environments forced us to re-evaluate the combination," CF Industries chief executive Tony Will said.

CF Industries will pay OCI a termination fee of $150 million related to the deal.

Tax benefits

Tax inversion allows a corporation to switch its domicile into a lower-tax locations, which can be achieved by merging with an overseas entity.

The move is particularly beneficial for US corporations, as the measure frees them from the country's unique worldwide taxation system, which taxes overseas subsidiaries as well as domestic.

The US treasury has been moving to crack down on the practice, with a succession of new rules bought in the administration.

The latest set of regulations, implemented last month, put the kibosh on a massive tax inversion deal by drug company Pfizer, in a bid to move offshore through a deal with the Dublin-domiciled allergen, creating the world's largest drug company.

The failure of the Pfizer bid was symbolic, as it was the company's 2014 overtures to the UK-based AstraZeneca which spurred the latest wave of anti-tax inversion legislation.

Sector shake up

CF Industries, which in 2014 saw a merger deal with Norwegian nitrogen giant Yara fall through, is not the only agricultural input business to be thwarted in its bid to escape the US tax regime.

Last year the seed company Monsanto was rebuffed, as it attempted to take over Swiss-based Syngenta, in a deal that was intended to move the company's domicile to the UK.

Monsanto is currently mulling a $62bn bid from German drug and chemical company Bayer.

And this is just the latest in series of massive deals and offers across the agricultural input market, including the merger of Dow Chemicals and DuPont late last year.


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