On Monday, Pfizer Inc announced that it would acquire Allergan Plc the maker of Botox for what is expected to be $160 billion. Ireland’s corporate tax rate of 12.5 percent is much more attractive to companies when compared to the U.S. tax rate of 35 percent, which is among the highest in the world.
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It is also increasing the election-year backlash from US politicians who have been blasting drugmakers recently over medicine prices that can exceed $100,000 a year.
“We can not continue to allow Pfizer and other corporations to pretend that they are American while reaping the benefits this country has to offer, yet claiming to be another nationality when the tax bill comes”, she said.
The merger was driven by tax considerations, with Pfizer carrying out what is known in the US business world as a tax inversion deal. “Even though this is a foreign company, it’s actually going to create a tremendous problem for all purchasers in the US market”.
Pfizer, based in NY, makes medications including Viagra, pain drug Lyrica and the Prevnar pneumococcal vaccine, and Allergan produces Botox and the Alzheimer’s drug Namenda.
It will also reignite 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.
The combination will essentially be Pfizer “but with a lower tax rate”, wrote Bernstein analyst Tim Anderson.
President Obama has called inversions “unpatriotic”.
A Treasury spokesman said the department did not comment on specific transactions. We are very committed to expanding our capabilities in Ireland and it will be our domicile. Its latest deal boosts global healthcare merger activity to $649.4 billion – more than the previous two full years combined. Each new deal puts pressure on smaller rivals to bulk up.
Sanders said: “The Pfizer-Allergan merger would be a disaster for American consumers, who already pay the highest prices in the world for prescription drugs”.
“We’re all going to feel this”, he said. Pfizer shareholders would control of 56 percent of the combined company.
According to Pfizer, the transaction should deliver more than $2 billion in operational synergies over the first three years after closing.
If Pfizer completes Allergan acquisition, it will finally get what it has long desired: a chance to move its headquarters outside the United States. However, Rosenthal doesn’t believe the Pfizer-Allergan merger will run afoul of current tax law.
USA efforts to limit inversions have so far proven ineffectual. Allergan itself is the product of an inversion.
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Pfizer shareholders will receive one share of the combined company for each Pfizer share and will be eligible to receive at least a few of their shares in cash.
