“We’ve obviously developed into truly a giant company,” Richard Fearon, the vice chairman and chief financial and planning officer of Eaton Corp., reflected earlier this month.
Indeed, with its acquisition of Cooper Industries, a big electrical-equipment supplier based in Dublin, Ireland, in November, Eaton has a market cap of more than $30 billion and employs more than 102,000 people. “That gives you the scale advantages that allow you to compete everywhere around the world,” says the CFO of Eaton, which likes to refer to itself as a “global power management company.”
That boils down to a fairly lengthy list of products and services. Besides electrical equipment, it offers power transmission, lighting and wiring products; hydraulics components; aerospace, truck and automotive systems; and much else.
While Cooper is the biggest company that it’s purchased, Eaton dwarfs its acquisition. Thus it’s curious that the parent company has relocated its Cleveland headquarters to the home base of its target.
To be sure, placing the combined company in the business-friendly city will save Eaton a bundle in taxes. Fearon has strong opinions about the difficulties of operating under the U.S. tax code. But much else went into the decision to move. An edited portion of CFO’s recent interview with the strategy-minded finance chief follows.
Why did Eaton move its headquarters to Dublin?
The only way to make the transaction happen from a legal and financial standpoint was with the overall parent being in Dublin. As we thought about it, we said there are some long-term advantages to being in Dublin. First of all, we’re a very global company, and from Europe it’s easier to get to Asia. It’s as easy to get to South America, since Ireland is the farthest west part of Europe. It’s not very hard to get to the United States either. So, it’s not a bad place to have a global headquarters.
It’s also a very business-oriented country. I lived for a long time in Singapore, which is also very business-oriented, and Ireland reminds me a lot of it. If one needs to have a discussion with a government official about a policy or a particular need of a business, it’s relatively easy to arrange a discussion about that. The government officials we’ve interacted with have been, by and large, very pro-business, pro-growth.
We also chose Dublin because it does have a tax climate that’s a bit more favorable than some countries. We’ve made $160 million a year in tax and cash management savings. The U.S. tax code, which is a global system, really penalizes companies for taking cash back into the United States. That probably isn’t the most sensible system, because it causes companies to be reluctant to bring cash back. And of course cash is used for investment, for returning money to shareholders, things that are positive for the United States. Ireland is much more pragmatic, and the tax rate is quite low. For most treaty countries, the tax rate there is 12 percent. In comparison, the U.S. rate is 35 percent, in addition to state and local taxes.