US-based Pfizer announced on Monday a $160bn merger with Ireland-based Allergan to create the world’s biggest pharmaceutical group and shift to a lower-tax jurisdiction, despite USA government policies discouraging such deals.
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US President Barack Obama has called inversions unpatriotic and has tried to crack down on the practice.
Pfizer and Allergan will face antitrust scrutiny from both USA and European regulators in getting the deal done.
The merger was driven by tax considerations, with Pfizer carrying out what is known in the USA business world as a tax inversion deal.
Under a manoeuvre known as an “inversion”, Pfizer will be able to lower its corporate tax load by reorganising as a company in Ireland, which has a lower tax rate. Pfizer, while nominally moving its headquarters to Dublin for tax purposes, will likely still be run from NY, he said.
Pfizer makes such drugs as Viagra, cholesterol-lowering Lipitor and the clot-preventer Eliquis.
Read has said his company is at a competitive disadvantage by having its tax domicile in the US, and his pitch is that that the deal will help the companies invest in more innovative drugs.
Democrats heaped the most criticism on the New York-based drug maker, with Hillary Clinton accusing Pfizer of using legal loopholes to avoid its “fair share” of taxes in a deal that she said “will leave U.S. taxpayers holding the bag”.
Pfizer anticipates the transaction will deliver more than United States dollars 2 billion in operational synergies over the first three years after closing of the transaction. “Historically, inverted companies maintain their key operations in the United States, which Pfizer is apparently doing, while reducing the taxes they pay here”.
The new regulations “will prevent US firms from essentially cherry-picking a tax-friendly country in which to locate their tax residence”, Treasury told Bloomberg News. Pfizer shareholders would control of 56 percent of the combined company. He said he expects a tax rate of about 18 percent after the deal, which compares to Pfizer’s current rate of 25 percent.
Pfizer announced Monday it will buy Allergan for US$363.63 a share, or about US$160 billion (S$226.4 billion) in the biggest deal ever in the health sector.
Amid political backlash over the looming Pfizer-Allergan announcement, Treasury rushed out new rules Thursday, but they focus on deals in which the overseas company’s shareholders end up with 20 to 40 percent of the combined corporation.
The merged company’s board is expected to have 15 directors, consisting of all of Pfizer’s 11 current directors and four current directors of Allergan. The Treasury Department has taken steps, including several announced last week, to try to hamper inversions.
The deal could be a precursor to Pfizer’s eventually being split in two.
There will also be a small cash component, accounting for less than 10 percent of the value of the deal, the people said.
It would be the biggest merger of the year, topping beer maker Anheuser-Busch InBev’s proposed $107 billion takeover of SABMiller Plc.
Bernie Sanders, the leftist presidential candidate, said, “The Pfizer-Allergan merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs”. The pharmaceutical industry has been on a mergers-and-acquisitions kick as corporations seek to gain scale by combining research and development departments, and to expand into new markets.
Saunders has had a meteoric rise in the industry over the past five years, turning around eye-care company Bausch & Lomb and also leading Forest Laboratories and Swiss drugmaker Actavis, which took the Allergan name after acquiring it this year.
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Pfizer Inc. Chairman and Chief Executive Officer Ian Read will serve in the same roles with the combined company while Allergan Plc. leader Brent Saunders will become president and chief operating officer.
