US companies looking to grow through acquisition have been searching fervently in recent years for overseas deals that involve a tax-saving process known as an inversion.
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Pfizer Chief Executive Officer Ian Read will hold that position at the combined entity, while Allergan CEO Brent Saunders will be president and chief operating officer.
Pharmaceutical giants Pfizer and its most powerful rival, Allergan, has just announced a record-breaking merger.
Pfizer has done three sizeable deals since 2000 to boost revenue, and the Allergan offer comes as generic competition to blockbuster drugs like Lipitor is expected to cut Pfizer’s sales by $28 billion from 2010 through next year.
The agreement also facilitates the widely discussed potential for Pfizer to reconfigure itself by splitting the newly enlarged company into two: one focused on new drug development, the other on selling older medications.
Allergan as well as Pfizer shares were down more than 2% on the news.
Read, a trained accountant, has said Pfizer could decide on such a split by late 2016, after it completes separate financial analyses of the two businesses.
The merger is the biggest announced this year, beating the 121-billion combination of top brewers Anheuser-Busch InBev and SAB Miller clinched earlier this month.
The deal terms mean 11.3 shares in the combined company for each Allergan share – worth about £240 each.
The deal is to be structured as a “reverse merger” with Allergan taking over Pfizer, which should prevent the Obama administration from scuppering it.
But the company counted 21 M&A deals, valued at $1.59 billion, involving US pharma, medical and biotech companies moving to the United Kingdom this year, and another five deals valued at $184 billion involving USA companies from that sector heading to Ireland, which has an even more favorable corporate tax regime.
As a result of the decision to maintain Allergan’s Irish legal domicile, Pfizer said it expects its tax rate to drop to 17 to 18 percent from its current 25 percent.
The merger is likely to come under political scrutiny, viewed as a strategic attempt by Pfizer to avoid federal corporate taxes. PFE is down on the day $0.84, or 2.61%, to $31.34 per share as of 9:46 AM ET, and AGN is down $8.71, or 2.79%, to $303.75 per share as of 9:46 AM ET. These types of deals are sometimes done for the tax benefits of getting the accounts out of the US.
Health care companies of all stripes are joining forces to reposition themselves as various market and government forces, notably the Affordable Care Act, have complicated the growth outlook for the companies’ revenues and profits.
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The merged company will have a combined total of 40 research and developments sites across the world.
