It plans to release a guidance on the matter on Wednesday of this week.
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Pfizer dropped 2.1 percent to $31.51 at 9:34 a.m.in NY, while Allergan fell 2 percent to $306.17.
However, the merged giant would still be under Pfizer control with Ian Read, chief executive of Pfizer, leading the company.
Allergan, which is headquartered in Dublin and known for producing Botox, will likely be the legal buyer in this case so it can help New York-based Pfizer lower its American tax rate.
To take advantage of the favourable Irish tax system, the deal will technically be structured as a reverse merger, meaning that Allergan will be shown as acquiring the New York-based company.
Previous year the UK’s AstraZeneca rejected a $119bn merger proposal from Pfizer.
It could end up being the world’s second-largest merger following British telecom company Vodafone’s purchase of Germany’s Mannesmann for US$172 billion including debt, in 1999.
Many people, including presidential candidate Donald Trump, have raised their voices against the highest USA corporate tax rate, and asking for changes in this current rate to keep companies from moving to foreign countries, according to a news report by Bloomberg. The deal also presents Pfizer an opportunity to relocate its headquarters to Ireland.
Pfizer stockholders can get cash or one share of the combined company for each of their shares, but the aggregate amount of cash must range from $6 billion to $12 billion.
With a market value in excess of £200bn, the combined company, dubbed “Pfizergan” would surpass Johnson & Johnson as the world’s largest healthcare group.
The businesses of Pfizer and Allergan will be combined under Allergan Plc, which will be renamed Pfizer Plc.
Allergan itself has been recently transformed, created through an acquisition by Actavis Plc that kept the Allergan name.
Allergan earlier this year agreed to sell its generics division to Teva Pharmaceutical Industries (NYSE:TEVA) for $40.5 billion.
The combined company is expected to generate annual operating cash flow in excess of $25 billion beginning in 2018 with broadened innovative pipeline of more than 100 combined mid-to-late stage programmes in development.
Last year, Pfizer unsuccessfully tried to buy British drug maker AstraZenenca in an approximately $118-billion deal that would have involved an inversion.
The merger will be the biggest for the year having already surpassed the $107 billion takeover of SABMiller by Anheuser-Busch InBev’s. It also absorbed Warner Chilcott PLC and Forest Laboratories Inc.in multibillion-dollar deals.
In a prominent position at the combined company, Saunders would be a favorite to succeed Read eventually.
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Pfizer is a regular contributor to M&A activity: six of the top 20 biggest pharmaceutical deals involved the company, according to the data.
