Tyco Facing Fresh Pressure To Quit Bermuda

by Mike Godfrey, Tax-News.com, Washington

06 March 2003

An influential alliance of investors, state officials and unions representing more than $1 trillion of investment interest applied further pressure this week on the beleaguered Tyco Corp to change its country of incorporation from Bermuda to the United States.

By incorporating in the tax haven of Bermuda, Tyco benefits from a much more relaxed regulatory regime. However, the group say that this is at the expense of shareholder protection, and in the words of the American Federation of State, County and Municipal Employees earlier in the year, this situation: "makes it more difficult for shareholders to hold companies, their officers and directors legally accountable in the event of wrongdoing."

Consequently, the company, which has already faced its fair share of scandal in recent times, is being urged to reincorporate in the US. Though Tyco has reportedly considered this move itself in recent months, no concrete announcements have been made. Indeed, it seems the firm has urged shareholders to vote against the move. As a result, sanctions against the company are being considered to force it to rethink its policy, with divestment just one option being considered.

California Treasurer Phil Angelides is a supporter of this measure, and was quoted by Reuters as saying "I am one member who is willing to go down the path of divestment if in fact these companies do not change. I do think these companies need to know there are consequences". The Treasurer of Connecticut, New York City's comptroller, and head of pension firm Calpers are others which have pledged their support for this type of action.

Tyco is not the only company that has been targeted by Angelides in recent months. In December last year, the Californian official proposed that six Bermuda based companies (including Tyco) be ejected from the S&P 500 as punishment for trying to avoid "scrutiny for sleazy corporate governance practices." Bermuda's Finance Minister, Eugene Cox, at the time rubbished the suggestion, arguing that: "The singling out of Bermuda based companies in this manner disregards the real issue and that is that these companies have not done anything illegal and are engaging in legitimate business." He attacked Angelides' proposal as "short-sighted and nonsensical."

Dennis Nappier, Connecticut state treasurer, said that the group collectively holds some 12.5 million shares in Tyco, including the Amalgamated bank, the California's state pension fund, and the American Federation of State, County and Municipal employees, according to the Reuters report.

In a somewhat ironic twist, it is possible, as some have argued, that Tyco's move back to US could hurt investors even more. With the company already reeling from corporate scandal and heavily in debt, the increased tax burden the firm would face in the US could spell an uncertain future for the company and shareholders alike. However, Angelides seemed unmoved by this prospect and chose to look at the bigger picture, arguing: "Unless American investors believe that the market place is fair, open and honest, that the rules are the same…we will never see a return of confidence".

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