In a new NBC / Wall Street Journal poll, 59 percent of Americans say that Congress should “penalize and discourage” U.S. companies that engage in corporate inversions – cross-border M&A deals structured to reduce future corporate taxes on non-U.S. income and profits repatriated from abroad. Only 32 percent disagreed, saying companies “have a duty to their shareholders to lower costs and grow their business.”

As WSJ put it, the poll suggests that “voters both are aware of the [inversion] tactic…and actually care about it.” Washington is taking heed, with proposals for new rules expected to follow. The data – and the interplay of grassroots, consumer, political and other reactions – also underscores the need for companies to consider issues and risks across the stakeholder landscape around transactions, whether they involve an inversion or not.

Walgreens is a case in point. In August, the company announced a full takeover of Alliance Boots to create a global pharmacy, health and wellbeing enterprise. As was widely reported prior to the deal, some investors were pressing Walgreens to re-domicile in Europe to lower its tax rate through an inversion. Walgreens became embroiled in a fierce public debate, with criticism from politicians such as Senate majority whip Dick Durbin and influential news columnists, calls for a consumer boycott cluttering social media and blogs and hometown protests.

Walgreens decided to keep its U.S. domicile in the final structure of the deal, in part because, as the company stated in its announcement, it was “mindful of the ongoing public reaction to a potential inversion and Walgreens unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs.”

Pfizer’s attempted takeover of UK based AstraZeneca offers different lessons. Notwithstanding the concerns raised on this side of the Atlantic about inversions (last week the Wall Street Journal reported  that as part of AstraZeneca’s defense strategy, its bankers called on senior White House officials to clamp down on the technique), the reasons the bid faltered had much to do with concerns raised among stakeholders in the UK. “We see the future of the UK as a knowledge economy, not as a tax haven,” UK Business Secretary Vince Cable told the House of Commons amid heated questioning, hearings and a torrent of news coverage. “Our focus is on what is best for the UK – securing great British science, research and manufacturing jobs and decision-making in the life sciences sector.”

Echoing calls across the UK political spectrum, a widely publicized Survation poll conducted on behalf of the country’s largest union found that only 14 percent of those surveyed thought the takeover was in the UK national interest and that prime minister David Cameron risked alienating Conservative voters, with three-quarters believing that a takeover of this magnitude should be subject to a “public interest” test to protect Britain’s science base. Despite promises by Pfizer that it would keep manufacturing and R&D in the UK, memories of Kraft’s decision to close a factory after promising to keep it open during its takeover of Cadbury made politicians and the public suspicious. In the end, AstraZeneca’s board of directors rejected the bid citing valuation and the company’s standalone growth prospects and R&D culture – despite significant pressure from institutional shareholders to negotiate a deal with Pfizer.

Not all inversions have faced the same level of criticism, and some companies have been more effective in explaining how their deals are driven by business strategy and the benefits for key stakeholders. Consider Medtronic’s win-win message by CEO Omar Ishrak on its $43 billion merger with Covidien, commenting on the repatriation of internationally generated profits enabled by the inversion structure: “[While continuing to pay taxes on all U.S. earnings] this structure will allow us to invest much more aggressively in the U.S., and based on that, we are committed to investing an incremental $10 billion over the next 10 years. These investments will result in more high-paying U.S. jobs. We have a proven track record of creating U.S. jobs with our past acquisitions. For example, with Sofamor Danek, AVE and MiniMed, we have created nearly 10,000 U.S. jobs since acquisition… Our level of US job creation will only accelerate following this transaction. In our view, acquiring Covidien is good for Medtronic, for our shareholders, for patients and for the medtech industry, and ultimately for the U.S. economy.”

Companies know that consumers and grassroots communities now feel empowered to weigh in and push back on a whole host of business issues. This is also the case for deals, and not just the inversion kind. Not too long ago, APCO worked with the opposition to AT&T’s proposed merger with T-Mobile to foster an online community of over 100,000 members on Facebook that broke the record for inbound comments to the Federal Communications Commission on any issue until that time.

There are also signs that some shareholders are examining corporate tax strategies that increase profits but might introduce risks and the need for mitigation related to relationships with governments and a company’s license to operate. This year the Dow Jones Sustainability Index, one of the world’s leading providers of indices tracking the financial performance of sustainability-driven corporate leaders,  updated its assessment process to include Tax Strategy as a new criterion “to address the growing risks relating to aggressive taxation policies.” Understanding the stakeholder landscape and articulating a compelling value proposition can help companies reduce risk and win support for transactions and other business strategies.

APCO is well placed globally, in collaboration with other advisors, to plan and deliver integrated communication and public affairs strategies around M&A transactions and strategic change. Several of the companies named in this article are APCO clients generally, however, APCO does not work with them on inversion issues.

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Jeff Zelkowitz

Jeff Zelkowitz is senior director and global financial practice leader based in APCO Worldwide’s New York office. Read More