But at core it’s an inversion deal driven by the financial lure of Ireland’s lower tax rates – Allergan’s home base – which will save Pfizer billions in taxes.
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2014: Burger King Worldwide buys Tim Hortons for $12.01 billion (completed).
And the merger is actually good for the US, Read contends-despite the loss in tax dollars and a $2 billion cost-cutting target that means layoffs are on the way. Shares of Pfizer were down 2.6 percent or $0.88 to $31.30 on the news. U.S. President Obama previously had described inversions as an “unpatriotic tax loophole” and called on Congress to enact new tax reform laws to discourage such practices that could erode the country’s tax base.
Pfizer also disappointed some investors by delaying by two years a decision on whether to sell off its division consisting of products facing generic competition. Many companies – Medtronic included – have shifted their home bases to Ireland to take advantage of these tax rates – and more will likely follow.
The deal between Pfizer Inc. and Botox maker Allergan is the largest corporate merger this year. The companies also said the transaction would lower Pfizer’s tax rate to the Irish levy of 17%-18%.
Read will become the chief executive of the new Pfizer plc, while Allergan chief executive Brent Saunders will become chief operating officer with oversight of all Pfizer and Allergan’s combined commercial businesses, manufacturing and strategy functions.
“The pharmaceutical sector, which has had over $220bn of deals in the first half of 2015 alone, will be buoyed further by the proposed purchase of Allergan by Pfizer, the largest pharma deal ever at $160 billion, surpassing the $116 billion Pfizer paid for Warner Lambert in 2000”, said Ketan Patel at EdenTree Investment Management.
CEO Ian Read says the deal will help put the company “on a more competitive footing”.
Last year, Pfizer made a £70bn bid for AstraZeneca in what was widely perceived as an early attempt to make a tax inversion.
The deal might have been described as a mega-merger in the pharma industry, but some of the leading analysts and pharma company executives in India told Business Today it doesn’t hold much ground for Indian pharma companies. White House Press Secretary Josh Earnest said Monday that the Treasury Department has tried to crack down on inversions, and managed to make them somewhat more hard, but said Congress needs to act to make more sweeping changes.
Anders Dahlbeck, tax justice policy adviser of non-governmental organisation ActionAid, said: “This is just the latest example of a multinational company exploiting the global race to the bottom on corporate tax rates to avoid paying their fair share”. Pfizer shareholders will get one share of the new company’s stock for each of their shares.
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Sen. Charles Schumer, D-N.Y., a member of the Senate Finance Committee, called Pfizer’s move “truly disturbing”, given how the company has benefited from federally funded research and infrastructure.
