Groups call for Tyco to reincorporate in the U.S.

Company officials say they’ll consider it, but ask its shareholders not to support it
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Tuesday, April 1, 2003

PEMBROKE, Bermuda - Several large shareholders of Tyco have banded together, calling for the conglomerate to incorporate in the United States instead of maintaining its base in Bermuda.

The call for Tyco to reincorporate under U.S. laws follows an initiative by The California Public Employees Retirement System which sent letters to the top 100 shareholders of the company asking them to urge the company to relocate.

For months, shareholders have called into question Tyco’s accounting practices following an investigation that revealed previous management misused company funds. But the initiative by CalPERS appears to be the first formal action taken to push the company to relocate.

“Tyco and others still have much work to do before they restore shareholder confidence and increase their legal rights. The only way for shareholders to truly hold Tyco accountable is for the company to reincorporate in the U.S.,” said Gerald McEntee, president of American Federation of State, County and Municipal Employees, whose union is sponsoring a resolution to reincorporate the company in the U.S.

Many large corporations, including Tyco, have relocated to offshore tax havens in recent years to reap financial benefits. The biggest benefit, said Scott Duma, an Atlanta-based attorney with the law firm Powell, Goldstein, Frazer and Murphy, is that the tax liability is divided among the jurisdictions where they do business.

“No company wants to be perceived as dodging tax obligations,” said Duma. By incorporating in offshore locations such as Bermuda, some companies are able to deliver maximum shareholder value, he said.

It’s unclear whether Tyco officials will consider reincorporating the company. Several members of U.S. Congress have introduced legislation relating to the tax treatment of U.S companies in offshore tax havens. Other initiatives include limiting or prohibiting such companies from bidding on certain government projects.

In its proxy statement, Tyco said its board will evaluate the potential benefits, costs and disadvantages of reincorporating, but for now is urging shareholders to vote against AFSCME’s proposal.

Tyco incorporated in Bermuda in 1997 through its acquisition of ADT Security Services. Ingersoll Rand, which operates a security division, also reincorporated to Bermuda from the U.S. in late 2001 to take advantage of tax incentives offered by the country.