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Johnson Controls and Tyco: Another big merger could skirt taxman

It's another illustration of a U.S. company using a corporate inversion to cut its tax bill.

Johnson Controls (JCI) and Tyco (TYC) on Monday announced their deal, which they expect to be finalized by the end of September. The manufacturing companies estimate at least $650 million in savings over three years, including $150 million in annual tax savings.

The merger, which will create a conglomerate with $32 billion in annual revenue, is the most recent example of a U.S.-based company buying a foreign firm and switching its headquarters to the foreign company's home to cut its tax bill.

The issue has come up in the presidential race, with Democratic candidate Hillary Clinton last month urging Congress to act while calling out Pfizer (PFE) after the New York-based drug manufacturer in November unveiled a $160 billion merger with Allergan (AGN) in an acquisition meant to send one of the largest U.S. corporations -- or at least its main executive offices -- to Ireland, where Allergan is based.

Johnson Controls plans to move its legal and global headquarters to Tyco's base in Cork, Ireland, while continuing to operate in Milwaukee.

Shareholders of Johnson Controls will get $3.9 billion in cash and own 56 percent of the combined company, keeping its ownership below the 60 percent bar set in November by U.S. Treasury rules, which implemented some restrictions on deals above that level in an effort to curtail inversions.

At the time, Treasury Secretary Jacob Lew said there was only so much the administration could do to prevent U.S. companies from pursuing the maneuver, and reiterated a call for Congress to pass legislation.

Roughly 50 U.S. companies have inverted in the past decade, with additional corporations thinking about it, according to the nonpartisan Congressional Research Service.

Tyco shareholders will own 44 percent of the company, which will retain the Johnson name.

Tyco itself did an inversion in the late 1990s by acquiring security company ADT, which was incorporated in Bermuda. Now based in Ireland, Tyco operates in Princeton, New Jersey.

Shares of Johnson Controls were down more than 2 percent in afternoon trade. Tyco shares rallied nearly 11 percent.

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