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August 10, 2014


Hedge Funds Bet on Inversions

Hedge funds are preparing to capitalize on the wave of takeover deals designed to lower taxes for U.S. acquirers.

While President Barack Obama has attempted to discourage the practice known as “inversions,” in which a U.S. firm buys a foreign company and moves overseas in order to avoid higher taxes, many bankers and lawyers suggest this trend is here to stay, at least until the end of the year.

This news has hedge funds seeking U.S. companies and the foreign firms they could target in an attempt to reincorporate overseas.

The trend has continued to become more mainstream with nearly a dozen pending transactions valued at more than $100 billion.

“It’s very simple when the math works,” said Dr. Jacob Gottlieb, founder of Visium Asset Management LP, a roughly $7 billion New York hedge-fund firm.

Companies involved suggest these deals bring strategic as well as tax benefits.

Inversions are becoming more complicated now due to increasing criticism from the White House as well as Congress. However, legislation in the near future seems unlikely, despite President Obama’s call to action.

“The ability to do an inversion is not going to be out there forever,” said Ted Chen, a portfolio manager at Water Island Capital LLC, whose funds bet on corporate mergers and other events.

Inversions are complex agreements after all, and as with any deal, they’re liable to fall through.

Investing in merger trends “is difficult enough as it is,” said Bob Cotter, who invests in hedge funds at Merritt Capital Investment Advisors LLC in Darien, Conn. “When you’re counting purely and simply on an inversion, there’s an element of risk there.”

As more and more investors become aware of the trend, share prices have continued to rise, thus, diminishing the possibility of a handsome return.

“Every fund in New York is looking for stocks that could rise from inversions,” said Mr. Chen. “It has become a mainstream thing.”

Source: “Overseas Tax Deals Draw Bets By Funds,” The Wall Street Journal, July 26th, 2014

Tax Evasion