Corporate Inversions : Stanley Works and the Lure of Tax Havens

SUBJECT AREAS: Accounting, Corporate control, Financial management, Financial statements, Financial strategy, International finance, Mergers amp; Acquisitions, Taxation, ValuationCASE SETTINGS: United States; Industrial goods; $2,264 million revenues; 15,000 employees; 2002In response to Stanley Work's announcement that it is moving to Bermuda - and the associated jump in market value - a major competitor sets out to determine how the market is valuing the consequences of moving to a tax haven and whether his company should invert to a tax haven. In particular, the competitor's CFO needs to attribute Stanley's stock price movements across several dimensions of potential tax savings (tax savings on foreign operations and on interest payments) to see if there might be something else at play (earnings stripping). In the process, the mechanics and incentives created by the international tax regime are illustrated