In the latest shake-up in the healthcare industry, pharmaceutical firms Pfizer Inc. and Botox-maker Allergan announced their $160-billion merger, creating the world’s largest drugmaker.
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Allergan shareholders will receive 11.3 shares of the combined company for each of their Allergan shares, and Pfizer investors will receive one share of the combined company for each of their Pfizer shares.
British journalist and author Simon Jenkins has said that Pfizer’s decision to move its headquarters to Ireland, as part of its $160bn merger deal with Allergan, is a text book example of the kind of corporate tax avoidance which should be made “illegal”.
Botox maker Allergan is based in Ireland but runs much of its operations out of New Jersey.
Pfizer stockholders will receive one share of the combined company for each of their Pfizer shares. The company anticipates that the combined company will have a pro forma adjusted effective tax rate of approximately 17% – 18% by the first full year after the closing of the transaction. A major advantage for New York-based Pfizer is that the deal will allow it to piggy back off Allergan’s Irish tax domicile and slash its USA corporation tax bill.
Pfizer chief executive officer Ian Read will head the new company, with Allergan CEO Brent Saunders in a high position, sources said.
The combination of Pfizer and Allergan will significantly increase the scale of Pfizer’s established business, and their complementary capabilities will maximize the combined established portfolio, analysts said.
Those changes weren’t enough to keep Pfizer and Allergan from merging in the largest inversion-type deal so far by a USA company. In October 2014, Chicago-based AbbVie and Dublin-based Shire Pharmaceuticals called off a $54 billion inversion deal after the Treasury issued new rules.
The companies estimated the merger would increase earnings per share 10%, excluding special items, in 2019 and add by a high-teens percentage rate in 2020.
The deal is expected to close in the second half of 2016, and it requires regulatory approvals.
Similarly, Pfizer (NYSE:PFE) planned acquisition of Allergan is being challenged by the familiar political situation as Barack Obama denounced such inversions as unpatriotic.
Last year, several such inversion deals fell apart and sparked scrutiny of corporate tax loopholes.
Last year, Pfizer’s tax rate was about 26.5 percent, and it is expected to be about 25 percent this year.
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The deal is yet to be approved by U.S. regulators, but Mr Read expressed confidence the deal would pass muster.
