Wright Medical Announces Inversion; Pfizer Won't Rule It Out

Wright Medical Group Inc., the maker of orthopedic implants and instrumentation, announced on October 27 that it has agreed to merge with fellow orthopedic manufacturer Tornier N.V. and reincorporate into the Netherlands, where Tornier has been headquartered for eight years. Wright will maintain its U.S. headquarters in Memphis, Tennessee. Both companies' boards of directors unanimously approved a deal to create a $3.3 billion combined entity.

"As a merger of two similar-sized companies with different domiciles, we had to choose a domicile that was best long term for the combined company," Wright CEO Robert Palmisano said on an October 27 conference call. "We expect the global structure of this planned combination will spur greater growth and employment opportunities here in the U.S. and other international locations."

According to a joint release from the companies, following the all-stock transaction, Wright shareholders will own 52 percent of the combined Wright Medical Group N.V. and Tornier shareholders will own about 48 percent. Each outstanding share of Wright stock will be exchanged for 1.0309 shares of Tornier. The exchange places a 28 percent premium on Tornier's closing share price as of October 24. The transaction is expected to be taxable to Wright's shareholders.

Also according to its 10-K, as of December 31, 2013, Wright had an immaterial amount of cash and cash equivalents held in foreign jurisdictions. The company did not have intentions of repatriating those indefinitely reinvested funds, which the company admitted would have negative tax consequences, the filing stated.

The Wright-Tornier transaction is expected to close in the first half of 2015, the release says.

The impact of Notice 2014-52, 2014-42 IRB 712, on corporate inversions is still being measured.

Despite the recent guidance, Pfizer Inc. has not ruled out inverting, Pfizer CEO Ian Read said on an October 28 conference call, although Read admitted concern over Treasury leaving open the possibility of taking further action against inversions. The uncertainty over future action further disadvantages U.S. companies already hindered by a high tax rate when compared with foreign competitors, Read said.

Read said. "We still believe on a case-by-case basis there is still meaningful value to be had from inversions and probably the most significant is the liberation of a substantial proportion of your future cash flows outside of the U.S. tax system into a territorial system."