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The primary benefit of debt is a tax benefit, arising from a skew in the tax code (pretty much around the world) towards debt. The biggest culprit is the United States, partly because the US has the highest marginal tax rate (for corporates) in the world. In this puzzle, we look at a news story from this week about how the US Treasury is clamping down on inversions and at the one big merger (between Pfizer and Allergan) that it is trying to stop.
The place to start this discussion is with the tax code. Start with this post that looks at tax rates around the world:
http://aswathdamodaran.blogspot.com/2015/01/the-tax-story-in-2015-myths.html
Then, read this one on what makes the US tax code one of the most perverse pieces of tax law in the world:
http://aswathdamodaran.blogspot.com/2014/08/the-insanity-of-us-tax-code-bad-laws.html
Pfizer's Inversion Bid for Allergan
Finally, turn your attention to the Pfizer bid to buy Allergan. In the post below, I look at the reasons given for the merger and look specifically at the tax rationale:
http://aswathdamodaran.blogspot.com/2015/11/value-and-taxes-breaking-down-pfizer.html
Take note of where the value created in this merger comes from,
The Treasury's Checkmate Bid
Here is the link to the news story about what the treasury is planning to
http://blogs.wsj.com/briefly/2016/04/05/treasurys-new-inversion-rules-at-a-glance/
Key Questions