Come back another day

By B.R.

SKY NEWS has today named Wyndham Worldwide as the mysterious suitor behind a $10 billion bid for InterContinental Hotels Group (IHG), the world's biggest hotel firm. It broke the news last month that an approach had been made for IHG by an unnamed bidder. InterContinental apparently rejected the bid because it was too low.

As we reported in The Economist this week, the offer to buy IHG was probably to do with tax. Some big American firms are keen to move their headquarters abroad to avoid the country’s hefty corporate taxes and the high cost of repatriating profits from overseas. This was also why Pfizer, an American drugmaker, launched a bid for AstraZenica, a British rival. It too rejected the price as too low. But there is every chance that both Pfizer and Wyndham will make improved offers a few months down the line—particularly as the rules on tax inversion are in Congress’s sights:

America has tried several times to stop companies fleeing abroad through tax inversion, with limited success. Rules introduced a decade ago required the foreign partner to be worth at least 20% of the combined group. That helped stem the outflow of firms inverting with shell companies in tax-free Bermuda and the Cayman Islands. But it left American multinationals with various options for mergers with smaller firms based in places with low corporate taxes, such as Ireland, the Netherlands and Britain, as long as the target firms had some employees and offices (“substance”, in tax-speak) in those countries.

Bills introduced in Congress this year by Democrats have proposed raising the 20% threshold to 50%; in other words, the foreign partner would have to be as big as the American one for the inversion to stand. The change would be applied retroactively, from May this year.

Other than tax, there may have been a sound business logic for a deal, which would have created a global hotel behemoth. Indeed, some shareholders did push IHG’s board to explore merger opportunities. But IHG’s performance has been impressive recently. In May the firm, whose brands include Holiday Inn and Crowne Plaza, said it planned to return $750m to shareholders. Its policy of selling hotel buildings and then franchising the operation of them has been a big success. And it currently has 1,000 hotels in its pipeline. All of which means that it will not come cheap.