UPDATE: 8/19/14, 10:40 a.m. EDT. The names of the lawyers from Procopio have been added to the 12th paragraph of this story.
Several Am Law 100 firms have sought to carve out a niche in the corporate inversions space, but Cadwalader, Wickersham & Taft may have found a way to help more U.S. companies use the controversial maneuver to lower their tax bills.
Raleigh-based Salix Pharmaceuticals has retained Cadwalader, as well as Covington & Burling and leading Irish firm A&L Goodbody, for its $2.7 billion all-stock acquisition of patents to gastrointestinal drugs owned by Cosmo Technologies, an Irish unit of Italy’s Cosmo Pharmaceuticals.
Salix’s strategy of acquiring the subsidiary of a foreign company could signal a new stage in the race by some U.S. businesses, many of them in the pharmaceutical sector, seeking a merger partner abroad to acquire the necessary 20 percent foreign ownership stake to incorporate their operations in an overseas domicile for tax purposes.
With many U.S. companies looking for foreign counterparts with enough size to hit the 80/20 ownership ratio to trigger an inversion—the percentage is the subject of pending legislation before Congress seeking to change that ratio to 60/40—the potential pool of suitable merger targets could expand if Salix is able to close on its merger with Cosmo Technologies as expected by the fourth quarter of this year.
Cadwalader has previously done some work for Salix, but the firm’s lead counsel role on the current deal is its first major M&A mandate for the gastrointestinal drug developer. Under the terms of the merger agreement, Salix will become a subsidiary of Cosmo, which will take the Salix name and remain domiciled in Ireland, with Cosmo shareholders owning a little more than 20 percent of the newly merged company.
Christopher Cox, the cochair of Cadwalader’s corporate group and an American Lawyer Dealmaker of the Year in 2014 for his role representing Irish drugmaker Elan Corp. on its successful takeover defense against a $6.6 billion bid by Royalty Pharma, is leading a team from the firm advising Salix on its deal with Cosmo. Cox, who joined Cadwalader in early 2012 from Cahill Gordon & Reindel, is no stranger to complex pharmaceutical industry transactions.
After seeing off Royalty Pharma, Elan tapped Cox and Cadwalader for counsel a year ago this month on its $8.6 billion sale to Perrigo, a deal that allowed the U.S. generic pharmaceutical acquirer to obtain a new tax base in Dublin. In 2011, Cadwalader teamed up with A&L Goodbody to advise Elan on the $960 million sale of its drug technologies unit to Waltham, Mass.-based biotechnology company Alkermes in a transaction that started the current wave of U.S. corporate inversion deals.
As it happens, Cadwalader and A&L Goodbody are once again joining hands in advising Salix on its absorption into Cosmo. Besides Cox, other Cadwalader lawyers working on the matter include corporate cochair and firm chairman-elect James Woolery, finance partners Geoffrey Levin and Ira Schacter, tax partners Linda Swartz and Adam Blakemore, and special counsel Aly El Hamamsy and Paul Dunbar.
Woolery, a former partner and business development chair at Cravath, Swaine & Moore who joined Cadwalader in his own high-profile lateral move last year, is the coauthor—along with Cox, Dunbar and Swartz—of a recent client analysis by the firm presented to the Irish government on the merits of corporate inversions. Woolery met in Dublin on June 25 with Irish Prime Minister Enda Kenny and finance minister Michael Noonan to present Cadwalader’s report, which found that Ireland itself is missing out on some of the benefits of the corporate inversion craze targeting the country as a result of its low corporate tax rates.
Salix executives will continue to lead the new company created by its merger with Cosmo, whose Italian parent company reaped $200 million earlier this year from the sale of its stake in specialty pharmaceutical company Santarus after the latter was acquired by Salix. Thomas D’Alonzo, the independent chairman of Salix’s board of directors, is himself an attorney. William Bertrand Jr. moved into the role of general counsel for Salix last summer, replacing Mark Reeth.
Covington has been a longtime legal adviser to Salix, having handled its $2.6 billion buy last year of Santarus, as well as Salix’s $300 million acquisition of privately held urology treatment provider Oceana Therapeutics in 2011. The firm also successfully represented Salix earlier this year in a contract dispute with Napo Pharmaceuticals. Covington corporate partner Edward Britton, life sciences of counsel Edward Dixon and associates James Wawrzyniak and Grant Young are advising Salix on licensing and supply agreements with Cosmo. Covington finance partner D. Michael Lefever, capital markets partner Kerry Burke, special counsel Matthew Franker and associate Stephanie Bignon are assisting Salix on arrangements relating to its current debt.
A U.S. Securities and Exchange Commission filing by Salix shows that Cosmo is being advised by Irish firm Byrne Wallace and Dennis Doucette, chair of the corporate and securities practice at San Diego-based Procopio, Cory, Hargreaves & Savitch, who is leading a team from his firm that includes M&A partners Jason Femrite and P. Blake Allen, IP partner Eli Mansour, tax head Patrick Martin, tax partner Jon Schimmer, senior tax counsel Eric Swenson and attorneys Trent Andrews, Aaron Sokoloff and Jessica Swift. Italian lawyer Alessandro Della Cha serves as executive director and CEO for Cosmo, which as part of the deal with Salix has agreed not to attempt to market some of its drugs in the U.S.
The American Lawyer reported late last year that the spate of corporate inversion deals had contributed to a recovery in European M&A. A recent congressional study found that 76 U.S. companies have shifted their corporate domiciles away from the U.S. since 1983, with 47 of those moves coming within the past decade.
Among the more recent deals of note are Pfizer’s failed $117 billion bid for London-based AstraZeneca earlier this year, Medtronic’s $42.9 billion buy of Dublin-based Covidien last month and AbbVie’s proposed $51.5 billion takeover bid for Irish pharmaceutical firm Shire this week. The New York Times’ DealBook reported Wednesday that in many inversion deals, shareholders pay the ultimate price.