Johnson & Johnson's $30B takeover keeps cash overseas

Does the U.S. have the highest corporate tax rate?
Does the U.S. have the highest corporate tax rate?

Johnson & Johnson isn't following President Trump's advice to buy American.

It's spending $30 billion of its overseas cash pile on a Swiss biopharmaceutical company, Actelion (ALIOY).

Johnson & Johnson (JNJ) has a reputation for keeping tens of billions in cash outside the U.S. to avoid paying high American corporate tax rates. Now it's putting the money to work.

The company will still have about $12 billion in overseas cash after the deal closes, which is expected to be in the second quarter of this year.

Other American companies have been reluctant to bring overseas profits home because of the 35% U.S. corporate tax rate, the highest among developed economies. Apple (AAPL), General Electric (GE), Microsoft (MSFT), Pfizer (PFE) and Merck (MRK) all keep tens of billions overseas.

Asked on a conference call Thursday about tax implications, J&J chief financial officer Dominic Caruso said the Actelion deal was good in part because there were no U.S. taxes attached to it.

"That's the most attractive tax rate -- zero," he said, but noted he was closely watching for any developments on tax reform in the United States.

Trump has said he wants to lower U.S. corporate tax rates, which would encourage companies to bring money back into the United States.

During the presidential campaign, he suggested a tax rate of 10%. But that may not have the effect he wants: When companies have been granted tax breaks in the past, very little cash ended up returning to the United States.

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Johnson & Johnson is known for baby shampoo and consumer products, but it makes the bulk of its revenue selling drugs and medical devices. It's buying Actelion to get access to its blood pressure drugs and other drugs in later stages of development.

J&J said the takeover would boost sales and profits immediately. It will also lower the company's overall tax bill because Switzerland is known for comparatively low corporate tax rates. Executives did not say how much the deal would help J&J save in tax.

A J&J spokesman said the company didn't know yet whether the takeover would affect jobs.

50 billion offshore
Companies like Johnson & Johnson that do business abroad can avoid paying U.S. taxes on the billions of dollars they keep offshore.

As part of the deal, Actelion will spin off its early-stage research and development unit into a separate business that will stay in Switzerland. Actelion shareholders will get a stake in that business, and J&J will take a large stake, too.

J&J and Actelion have been working on the takeover for months. It got dramatic in December when they publicly broke things off, only to return a few days later to exclusive talks.

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