On Monday, Pfizer Inc announced that it would acquire Allergan Plc the maker of Botox for what is expected to be $160 billion.
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Six of the top twenty biggest pharmaceutical deals involve Pfizer, and this latest deal boosts global healthcare merger activity to $649.4bn – more than the previous two years combined.
It is expected to complete in the second half of 2016, subject to approval by shareholders, regulators in the USA and European Union as well as the completion of the sale of a division of Allergan’s business to another drugs firm.
More than 50 similar deals, called inversions, have been done over three decades by well-known companies such as Medtronic, Fruit of the Loom and Ingersoll Rand.
It also reignites debate in the pharmaceutical industry over the role of research and development, with Allergan Chief Executive Brent Saunders, a prolific dealmaker and a skeptic of in-house drug discovery, joining the combined company in a position to influence its strategy.
Many inversions have been done by health care companies, including Pfizer. Pfizer said Monday that it expects Pfizer holders to own about 56% of the merged entity, though that rate will depend on how much cash is paid in the merger. The merged pharmaceutical behemoth is set to continue trading on the NY Stock Exchange under the ticker PFE.
The transaction represents 30 percent premium based on Pfizer’s and Allergan’s share prices as of October 28, 2015.
US-based Pfizer is also the maker of leading drugs such as erectile dysfunction treatment Viagra and the cholesterol lowering treatment Lipitor. These kinds of mergers, called inversions, are costing the U.S. Treasury billions of dollars a year in lost tax revenue.
In afternoon trade, shares of Pfizer dropped 2.5 percent to $31.38 and Allergan fell 2.8 percent to $303.62.
“Although the Pfizer/Allergan deal appears to have been consummated and is attractive to both sides, the USA regulatory reaction to this very high profile merger remains an unknown and may very well be negative due to the size of the tax inversion”, Jacobs wrote in an email.
Aside from a lower tax bill, the Allergan acquisition would give Pfizer brand-name medicines for eye conditions, infections and heart disease. The global operational headquarters will be in NY, but its executive offices, and therefore its legal domicile for tax purposes, will be in Ireland.
Clinton has also said she would pursue tax reform, and said she will unveil details about ways to manage corporate tax inversions soon. That’s down from Pfizer’s current United States tax rate of about 25 percent.
Despite attempts by Congress and the Treasury Department to thwart the practice, about 50 US companies have inverted in the past decade, and more are considering it, according to the nonpartisan Congressional Research Service.
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The biggest merger ever was in the telecommunications industry – Vodafone’s 1999 purchase of Mannesmann for about $172 billion. The company reported that this merger would generate over $2 billion in savings in the first few years.
