Allergan, the product of a recent merger with generic drugmaker Actavis, is itself in the process of selling a large portfolio of generic medicines to Teva Pharmaceutical Industries Ltd for $40.5 billion.
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Pfizer recently reported third-quarter revenue of US$12.1 billion, including US$1.58 billion for its Prevnar pneumococcal vaccines and US$947 million for Lyrica. It’s done three sizeable deals since 2000 to boost revenue.
If Pfizer relocates its statutory headquarters to Allergan’s base in Dublin, the deal could bring huge tax savings.
Tax inversions were common in the 1990s, but became a hot topic two years ago when a number of high-profile inversions, and attempts, took place. Last year, AbbVie ($ABBV) pulled the plug on its $55 billion agreement to buy Ireland’s Shire ($SHPG), citing changes that had “introduced an unacceptable level of uncertainty to the transaction”.
However, with other companies announcing or pursuing inversions, the Obama administration acted. By the end of the year, the Treasury Department had initiated regulations created to limit the financial benefits of inversions. The rules bar certain techniques that companies use to lower their tax bills and tighten ownership requirements.
Icahn, whose estimated net worth is $22 billion, last week revealed plans to put $150 million into a new super-PAC that would push for legislation to discourage tax inversions.
One major hurdle is the price and another is concern over the degree to which Pfizer would want to cut staffing and close facilities, the WSJ said.
The two companies said on Thursday that they were in “preliminary friendly discussions”.
One of the aspiring Democratic candidates, Secretary of State Hillary Clinton, said in a statement that she was opposed to tax inversion deals and wanted reform of the U.S. corporate tax system to stem the flow of companies out of the US.
It would also spur further consolidation in the pharmaceutical industry.
After Allergan confirmed the Pfizer talks, its stock surged $22.95 a share, or 8 percent, to $310.15 in early trading Thursday while Pfizer’s stock fell 23 cents to $35.22 a share.
Pfizer, the largest US drugmaker, has also been suggested as a possible acquirer of GlaxoSmithKline and Shire.
The healthcare sector has seen several big and small deals since the beginning of the 2014, including large drugmakers buying smaller rivals. “Second, Allergan management is unlikely to be an obstacle to a transaction”, Anderson wrote.
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Actavis paid a total of $219 per share, with the remaining 60 percent in cash.
