In a $160-billion transaction, it plans to move its tax address from the United States to Ireland, if only on paper, by buying and merging into Allergan, a smaller, Dublin-based competitor. Allergan stock fell 3.4 percent, to $301.72, while Pfizer dropped 2.6 percent, to $31.33. The combined company will be called Pfizer PLC and will be run by Pfizer’s CEO, with executive management staying in NY and extensive operations across the US, but it will no longer be taxed as a U.S. company. The Treasury Department has taken steps, including several announced last week, to try to make inversions more hard.
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This deal is an issue of much discussion as it is structured in a way that will bring in tax benefit for Pfizer and is considered an inversion.
The deal values Allergan at $363.63 per share, about 30% more than its price when reports of a deal first surfaced last month.
By moving its global headquarters to Ireland, Pfizer will not have to pay any additional tax, however, as the rate in each individual country will likely be greater than Ireland’s 12.5%. The bottom line is that the driving force behind this merger is the greedy and counterproductive US tax code. Many Republicans also have decried inversions but said the solution is to significantly lower the US corporate tax rate to reduce the incentive to reincorporate overseas.
As the largest inversion so far, Pfizer and Allergan could face regulatory problems in Washington, said Maxim Jacobs, an analyst at Edison Investment Research.
Tax inversion The merger agreement was published as Pfizer kicked off a round of meetings with top shareholders to garner support for the biggest tax inversion in history, as market reaction suggested investors were pricing in a significant chance of the transaction collapsing.
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The deal, the largest ever in the health care sector, is expected to close in second half of next year.
