20-F: Birkenstock Holding PLC Enters Tax Receivable Agreement with BK LC Lux MidCo S. r.l.

Birkenstock Holding PLC finalizes a Tax Receivable Agreement (TRA) with BK LC Lux MidCo S. r.l. concerning pre-IPO tax assets and their impact on future tax liabilities.

Summary

• Birkenstock Holding PLC has entered into a Tax Receivable Agreement (TRA) with BK LC Lux MidCo S. r.l., effective October 10, 2023.
• The agreement pertains to the utilization of pre-IPO tax assets, which may reduce the tax liabilities of the Company Group after the IPO.
• The TRA outlines arrangements for deferred consideration related to a share buy-back, referencing the impact of pre-IPO tax assets on the Company Group's tax liabilities.
• The Company will pay BK LC Lux MidCo S. r.l. 85% of the realized tax benefits resulting from the utilization of these pre-IPO tax assets.
• The agreement includes provisions for early termination, change of control, and divestiture scenarios, which could trigger accelerated payments.
• Disputes related to the TRA will be resolved through reconciliation procedures involving a nationally recognized expert.
• The Company acknowledges that each ITR payment constitutes a payment of consideration for the shares repurchased by the Company pursuant to the Share Buy-back.

Sentiment

Score: 6

Explanation: The document is a legal agreement, so the sentiment is neutral. It outlines financial obligations and risk mitigation strategies.

Positives

• The TRA allows Birkenstock to utilize pre-IPO tax assets to potentially reduce future tax liabilities.
• The agreement provides a framework for sharing the benefits of these tax assets with the pre-IPO shareholder.
• The TRA includes mechanisms for resolving disputes, ensuring a fair and transparent process.

Negatives

• The Company is obligated to pay 85% of the realized tax benefits to BK LC Lux MidCo S. r.l., reducing the Companys overall savings.
• Early termination or a change of control could trigger accelerated payments, potentially straining the Companys finances.
• The Company may be required to make payments under the TRA that are greater than the specified percentage of the actual tax savings we realize in respect of the TRA Tax Assets

Risks

• The actual tax benefits realized may be less than anticipated, leading to payments exceeding the actual savings.
• Changes in tax laws or interpretations could affect the value of the pre-IPO tax assets and the resulting payments.
• Disputes over the calculation of tax benefits could lead to costly reconciliation procedures.
• The Company is not permitted, pursuant to the terms of the Company Groups debt documentation, to pay such amounts, or the Company Group Members are not permitted, pursuant to the terms of the Company Groups debt documentation, to make dividends, loans or other transfers to the Company to allow the Company to pay such amounts

Future Outlook

The agreement outlines the framework for future tax benefit payments based on the utilization of pre-IPO tax assets.

Industry Context

Tax Receivable Agreements are common in corporate transactions, allowing pre-IPO owners to share in the tax benefits generated by their contributions.

Comparison to Industry Standards

• Tax Receivable Agreements are common in corporate transactions, allowing pre-IPO owners to share in the tax benefits generated by their contributions.
• Comparable companies such as Ferrari N.V. and Global Blue Group Holding SA have similar agreements in place.
• The specific terms of the TRA, such as the percentage of tax benefits shared and the early termination provisions, are generally negotiated on a case-by-case basis.

Related Party Transactions

• The Tax Receivable Agreement is a related party transaction between Birkenstock Holding PLC and BK LC Lux MidCo S. r.l.

Stakeholder Impact

• Shareholders: The TRA could impact the Companys future cash flow and profitability.
• BK LC Lux MidCo S. r.l.: The TRA provides a mechanism for sharing in the tax benefits generated by pre-IPO tax assets.

Next Steps

• The Company will calculate and make tax benefit payments to BK LC Lux MidCo S. r.l. based on the Realized Tax Benefit.
• The Shareholder Representative will review the Tax Benefit Schedule and may object to it.
• The Company and Shareholder Representative will engage in reconciliation procedures if they are unable to resolve any disagreements.

Key Dates

Keywords

Tax Receivable Agreement, Pre-IPO Tax Assets, Tax Benefit Payments, Share Buy-back, Realized Tax Benefit, Early Termination, Divestiture, Tax Liability, Birkenstock, MidCo, IPO, Taxes