Ireland-based Allergan said in a statement that it had been approached by US-based Pfizer and that it “is in preliminary friendly discussions regarding a potential business combination transaction”.
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Back when Pfizer was talking about a deal with United Kingdom pharmaceutical AstraZeneca, estimates were that Pfizer could save upwards of $1 billion every year with such a deal.
Bernstein analyst Tim Anderson said Allergan was a good fit and Pfizer might feel now was the right time to do a deal, given a recent market correction that has made Allergan look cheap. “The hurdle will really be the price”.
Pharmaceutical companies Pfizer and Allergan have started initial negotiations for a possible merger in which the former will be the sole surviving company.
Allergan announced it would be making further announcements when appropriate.
The pushback began nearly immediately.
Last week, billionaire Carl Icahn said that he was setting up a $150 million super PAC bent on revising USA corporate tax law and ending the practice of inversions. “The Treasury Department’s efforts certainly helped stemmed the tide of inversions, but it will take legislation to effectively combat this disturbing trend”. A USA attempt to crack down on such tax avoidance deals led to the collapse of AbbVie Inc’s bid to buy Shire PLC, but it is unclear whether those rule changes would preclude potential tax advantages from a Pfizer-Allergan deal. This year, Pfizer has no debt payable against free cash flow of $12.2 billion. In the same time frame, Allergan shares have grown over 550%.
If concluded, a Pfizer-Allergan merger would be the largest of a series of giant takeovers in the health and drugs industries.
US-based Pfizer, which was not immediately available for comment, has a market value of about Dollars 219 billion, according to Thomson Reuters data.
Moody’s Investor Service said the deal would have “credit positive implications for both companies”.
A tax inversion is being discussed in the current talks, a person familiar with the matter told Reuters. In its pursuit of AstraZeneca, Pfizer had hoped to employ a tax inversion. He states that the main goal is to add value for shareholders, and that the company could either do a development deal, split, or remain as one.
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Pfizer is at a competitive disadvantage by having its tax domicile in the USA, Read said at Thursday’s event, which was hosted by the Wall Street Journal. Allergan, based in Dublin, is in the process of selling its generics unit to Israel’s Teva Pharmacueticals Industries Ltd., the world’s top generic drugmaker. The Journal reported that though the two companies are planning a merger, it is expected that the deal could face obstacles like agreement on price, layoffs and closing of facilities. Allergan’s market capitalisation of US$112.5 billion means a deal could be the biggest of the year. This deal would likely be worth more than half of the company’s M&A budget over the last two decades. It is not known how many cuts would result from a tie-up with Allergan. Hospira, which Pfizer acquired earlier this year for $15 billion, specializes in injectable generics.
