IRS disallows $2.86B in deductions taken by Tyco

Monday, July 1st, 2013 | Finance News

The IRS has informed Tyco International Ltd. that it has disallowed roughly $2.86 billion in interest and deductions recognized by the company in its U.S. tax returns for the 1997-2000 tax years, according to a filing Monday with the Securities and Exchange Commission.

The move stems from a finding by the IRS that several of the Swiss fire protection and security company's former subsidiaries owe $883.3 million in taxes and $154 million in penalties.

Tyco noted that it has been able to resolve substantially all of the issues raised by the IRS for periods beginning with the 1997 tax year, but it has not been able to resolve matters related to the treatment of intercompany debt transactions during that period.

The company said it strongly disagrees with the IRS' claims and intends to contest the proposed tax adjustments with the U.S. tax court.

"We believe that we have meritorious defenses for our tax filings, that the IRS positions with regard to these matters are inconsistent with the applicable tax laws and existing Treasury regulations, and that the previously reported taxes for the years in question are appropriate," Tyco said in the filing.

The company said it isn't required to make any payments until the dispute is definitively resolved, noting that could take several years.

Even so, Tyco warned that the ultimate resolution of the dispute is uncertain and could have a material impact on the company's financial condition.

For example, if the IRS' claim prevails, it would likely affect some $6.6 billion in interest deductions related to intercompany debt and taken by the company in subsequent tax years.

Tyco said it shares obligations on the issue with several companies that it spun off in recent years: Covidien PLC, TE Connectivity, ADT and Pentair.

Tyco spun off its Covidien health care and Tyco Electronics units in 2007 in a series of moves aimed at recovering from a high-profile scandal that led to the convictions of its former CEO L. Dennis Kozlowski and ex-Chief Financial Officer Mark Swartz for fraud. Tyco Electronics subsequently changed its name to TE Connectivity Ltd.

In 2012, it again separated into three public companies, forming The ADT Corp. and Pentair Ltd., along with Tyco International.

The tax-sharing agreements calls for Covidien to share 42 percent of any tax liabilities, while TE Connectivity's share is 31 percent, Tyco said.

Under its agreement with Pentair and ADT, the companies would also be responsible for covering a share of Tyco's tax liability. Pentair would share between 20 percent and 42 percent of the tax liabilities, while ADT would be responsible for 27.5 percent to 58 percent, Tyco added.

Pentair and ADT's share depends upon whether Tyco's tax liability for 2012 exceeds $500 million or $725 million.

Tyco International moved its global headquarters to Switzerland from Bermuda in 2009. It maintains its U.S. headquarters in Princeton, N.J. Its stock ended regular trading up $1.45, or 4.4 percent, at $34.40. Shares slipped 17 cents to $34.23 in extended trading.

Covidien moved its global headquarters to Switzerland from Bermuda in 2008. Its U.S. headquarters is in Mansfield, Mass. Covidien stock closed Monday up 25 cents at $57.41, then gained another 13 cents after hours.

TE Connectivity is likewise Swiss-based, with its main U.S. office in Berwyn, Pa. Its shares closed up 87 cents at $46.41.

Pentair is also headquartered in Switzerland, and has its main U.S. office in Minneapolis. The stock closed up 56 cents at $58.25.

Shares of ADT, based in Boca Raton, Fla., closed up 58 cents at $40.43, and added 7 cents in aftermarket trading.

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Buyout firm Vestar raises less than a quarter of its target

Monday, July 1st, 2013 | Finance News

NEW YORK (Reuters) - Private equity firm Vestar Capital Partners said on Monday it had wrapped up fundraising for its sixth fund, securing only $804 million from investors, a fraction of the $3.5 billion it was hoping to raise three years ago.

Vestar's fundraising woes highlight how private equity investors are becoming increasingly selective in their commitments to fund managers. Money is piling into buyout firms with strong track records at the expense of laggards.

Vestar's latest fund, Vestar Capital Partners VI, was looking to raise $3.5 billion, according to a presentation on the website of University of Missouri System, an investor.

But the firm's predecessor fund, Vestar Capital Partners V, which raised $3.7 billion in 2005, was marked at its investment cost as of the end of December 2012, according to Washington State Investment Board, another Vestar investor.

Private equity funds that completed fundraising in the second quarter of 2013 secured a total of $122 billion, the highest amount since the fourth quarter of 2008, although the number of these funds went down to 154 from 241 a year ago, market research firm Preqin said on Monday.

Just ten private equity funds accounted for 55 percent of the capital raised in the second quarter according to Preqin, including blockbuster funds from Silver Lake Partners LP, Riverstone Holdings LLC and Cinven Ltd.

Vestar said it had promoted two of its co-founders, Norman Alpert and Robert Rosner, to co-presidents. It lost another co-founder Sander Levy, earlier this year, who left to help start another buyout firm, Bridge Growth Partners LLC.

Vestar Capital Partners VI will make equity investments in the range of $50 million to $150 million in U.S.-based middle-market companies that have value, including debt, ranging from $250 million to $750 million.

Vestar's current and past investments include consumer and pet food company Del Monte Foods Co, financial advisory and investment banking firm Duff & Phelps Corp and frozen food maker Birds Eye Foods Inc.

(Reporting by Greg Roumeliotis in New York; Editing by Tim Dobbyn)

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States join US antitrust review of airline merger

Monday, July 1st, 2013 | Finance News

DALLAS (AP) — The attorney general of Texas and counterparts in other states joined a U.S. Department of Justice review of the proposed merger between American Airlines and US Airways.

A spokesman for Texas Attorney General Greg Abbott says that Texas and 18 other states entered the federal antitrust review. He declined further comment.

The companies announced in February that they planned to merge in a deal that would create the biggest airline in the world.

Members of Congress have raised concern that if combined, American and US Airways would control about 70 percent of the takeoff and landing slots at Reagan National Airport outside Washington, D.C.

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