Finance in the News Megan Findakly, Hanna Cohen, Ayomide Oluleye, AJ Ajiboye

April 4, 2016

Article

Title: “IHS becomes latest company to give up U.S. citizenship for lower taxes”

Source:

Date: March 21, 2016

Objectives

1.Who is IHS?2.What is inversion? 3.What are the implications of inversion? 4.How does inversion affect cost of capital?

Who is IHS? • Began in 1959.• IHS provides information and analysis to support the decision-

making process of businesses and governments • Industries: Aerospace, Chemical, Defense and Security,

Economics & Country Risk, Energy, and Technology• Key Acquisitions: Global Insight, Polk and Carfax, Jane’s

Information Group, RootsMetric

Financial Picture• Fiscal year 2015

– $3.3 billion in revenue– $1.2 billion in adjusted earnings before interest, taxes

depreciation and amortization (EBITDA)– $800 million in free cash flow

• Credit Rating– S&P: B++ and stable– Fitch: BBB and stable– Moody's: Ba1

IHS and Markit to Merge• Markit is a leading global provider of financial information

services.

What is inversion?

What is inversion?

What is inversion?

What is inversion?

2002: Congress enacts moratorium on inversions, then new law meant to stop them

2009: Companies begin to exploit exceptions in new law

What are the implications of inversion?

Source: Bloomberg

What are the implications of inversion?

Source: Google Source: Google

How do inversions affect WACC?

How do inversions affect WACC?

How do inversions affect WACC?

WeightedAverageCost ofCapital

How do inversions affect WACC?

vs.

Takeaways

• Inversion is when a US company buys or merges with a foreign company to reduce its tax burden

• The implication are positive on both shareholders and the company’s stock

• Earnings strippings improves its WACC, and lowers its taxable income

Discussion Questions

1.If you are already invested into IHS, how would you feel about this inversion deal?

2.Does IHS have an obligation to shareholders to limit its tax burden?

BibliographyHiltzik, Michael. Los Angeles Times. Los Angeles Times, 8 July 2014. Web. 03 Apr. 2016.

<http://www.latimes.com/business/hiltzik/la-fi-mh-corporate-tax-scam-20140708-column.html>.

Merle, Renae. "IHS Becomes Latest Company to Give up U.S. Citizenship for Lower Taxes." Washington Post. The Washington Post, 21 Mar. 2016. Web. 03 Apr. 2016. <https://www.washingtonpost.com/news/business/wp/2016/03/21/data-company-ihs-becomes-latest-to-give-up-u-s-citizenship-for-lower-taxes/>.

Raice, Shayndi. "How Tax Inversions Became the Hottest Trend in M&A." WSJ. 05 Aug. 2014. Web. 03 Apr. 2016. <http://www.wsj.com/articles/how-tax-inversions-became-the-hottest-trend-in-m-a-1407240175>.

"IHS and Markit to Merge, Creating a Global Leader in Critical Information, Analytics and Solutions." IHS Newsroom. Web. 3 Apr. 2016.