Pfizer Inc. (NYSE:PFE) acquisition of Botox drug maker Allergan PLC (NYSE:AGN), at $150 billion, is undoubtedly the largest of the deals in the drug making industry, anywhere in the world, leading to the creation of the largest drug manufacturer in the world.
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Pfizer and Allergan are joining in the biggest buyout of the year, a $160 billion stock deal that will create the world’s largest drugmaker. In such deals, bigger American companies buy smaller foreign ones and then switch their headquarters (at least on paper) to the location of the smaller company.
Because Allergan is based in Dublin, New York-based Pfizer can move its corporate home to Ireland, where the official tax rate is lower.
President Barack Obama and Congress have criticised inversions because they mean a loss of corporate tax revenue for the United States government. He said he expects a tax rate of about 18 percent after the deal, which compares to Pfizer’s current rate of 25 percent.
It would have annual revenues of almost £43bn, derived from drugs including Pfizer’s widely-known Viagra and Botox, the wrinkle treatment made by Allergan.
Many industry analysts and investors believe Pfizer could be bulking up with Allergan’s fast-growing brands as a prelude to splitting by 2017 into two companies – one selling high-margin branded drugs and one selling affordable generics that have dragged down Pfizer results over the past few years.
Last year, the U.S. Treasury Department initiated new regulations created to curb the financial benefits of inversions.
Under the terms of the proposed transaction, the businesses of Pfizer and Allergan will be combined under Allergan plc, which will be renamed “Pfizer plc”.
His counterpart at Allergan, Brent Saunders, called the merger a “highly strategic, value-enhancing transaction”.
TheStreet’s Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio commented on the deal in an article titled, ‘Hold on to Your Allergan Shares,’ published today saying: “It’s time to take a deep breath”.
The Allergan deal is expected to close in the second half of 2016.
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Allergan shareholders will receive 11.3 shares of the combined company for each of their shares, while Pfizer stockholders will get one share of the combined company.
