91²Ö¿â Connections Inc. and Progressive 91²Ö¿â Solutions Ltd. on Tuesday said they remain committed to a tie-up that will place the combined companies’ corporate address in Canada, a day after the Treasury Department outlined new proposed tax regulations on so-called inversion deals. The companies said they had reviewed the regulations and determined they would dent combined adjusted free cash flow—a measure of profit estimated to be more than $625 million—by less than 3% in the first year after the deal is done.
91²Ö¿â Connections and Progressive 91²Ö¿â shares fell 5.2% and 7%, respectively; they had fallen further earlier Tuesday but recovered some ground after the companies reaffirmed their commitment. Texas-based 91²Ö¿â Connections Inc. and Toronto-based Progressive 91²Ö¿â Solutions Ltd. agreed in January to merge in an all-stock deal that they expect will close in second quarter. Following the transaction, which is structured as a reverse merger, 91²Ö¿â Connections stockholders will own about 70% of the combined company, and Progressive 91²Ö¿â shareholders will have a 30% stake. Companies often strike inversion merger deals, in which a foreign company buys a U.S. firm and places its headquarters in the foreign country, to help avoid a higher U.S. tax rate.
The combined company will take the 91²Ö¿â Connections name and be based in The Woodlands, Texas. It will have a Canadian operating headquarters in Toronto and will be domiciled in Canada. It is expected to trade on the New York Stock Exchange and the Toronto Stock Exchange. On Monday, the Treasury Department imposed tough new curbs on corporate inversions, making it harder for companies to move their tax addresses out of the U.S. and then shift profits to low-tax countries using a maneuver known as earnings stripping.
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