US-based Pfizer announced Monday a $160 billion merger with Ireland-based Allergan to create the world’s biggest pharmaceutical group and shift to a lower-tax jurisdiction despite government policies discouraging such deals.
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Healthcare consolidation continues to pick up speed as Pfizer and Allergan announce their boards of directors have reached an agreement for a merger.
Ian Read, Pfizer’s Scottish chief executive, told the Wall Street Journal last month that the US’s high tax rates meant Pfizer was competing “with one hand tied behind our back”.
Bloomberg, which has a good explainer on inversions here, has described it as United States companies effectively “renouncing their citizenship”, although they typically do retain operational headquarters in America.
Sen. Bernie Sanders (D-Vt.), who is also seeking the Democratic presidential nomination, in a statement said the “merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs”, noting, “It also would allow another major American corporation to hide its profits overseas”.
Pfizer, which is known for the erectile dysfunction product Viagra (and many other drugs, including cholesterol product Lipitor) agreed to unite with Allergan, best known for Botox, the cosmetic product created to remove wrinkles.
Pfizer shareholders would have control of 56% of the combined company. It’s also a savvy business move – Ireland’s corporate tax rate is 12.5 percent, whereas the USA would levy 35 percent. It is unclear, however, if Allergan’s medical device business will be sold later, as Pfizer plc is largely pharma-oriented.
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.
The businesses of Pfizer and Allergan will be combined under Allergan Plc, which will be renamed Pfizer Plc.
Pfizer spent about $1.4 billion on measured media in the U.S. past year, making it the seventh largest advertiser in the country, according to ad spending tracker Kantar Media.
Botox manufacturer Allergan is based in Ireland but runs considerably of its operations from New Jersey. The deal makes the company richer than the entire nation of Singapore by far, which puts a few questions on our minds. She added, “This proposed merger, and so-called “inversions” by other companies, will leave USA taxpayers holding the bag” (Wolfgang, Washington Times, 11/23).
CNN reported that the new Treasury rules alone were not expected to scuttle the deal.
The US Treasury, concerned about losing tax revenue, has been taking steps to clamp down on tax inversion deals but experts have said these moves will do little to prevent Pfizer from shifting its domicile. The final terms include 11.3 Pfizer shares for every Allergan share and the deal also contains a small cash component, they said.
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The deal values Allergan shares at $363.63 each, about 16 percent more than their closing price of $312.46 on Friday.
