Drug maker Pfizer and the Ireland-based Allergan confirmed reports Monday that they were merging, creating the world’s largest pharmaceutical company with an estimated value of $160 billion.
Advertisement
The deal, the biggest merger announced this year and, if completed, the second largest takeover ever, combines Pfizer’s vast portfolio of drugs and vaccines addressing cancer, rheumatoid arthritis and other ailments, with smaller rival Allergan’s holdings that include anti-wrinkle treatment Botox as well as treatments for eye care, dermatology and urology.
Despite attempts by Congress and the Treasury Department to thwart the practice, about 50 USA companies have inverted in the past decade, and more are considering it, according to the nonpartisan Congressional Research Service.
Botox maker Allergan is based in Ireland but runs much of its operations out of Parsippany, New Jersey.
Allergan CEO Brent Saunders will become president and chief operating officer of the combined company with oversight of all commercial businesses. Together, Pfizer and Allergan generate more than $60 billion in sales.
The transaction represents more than a 30 per cent premium based on Pfizer’s and Allergan’s unaffected share prices as of October 28, 2015, it added.
The USA has laws preventing companies from avoiding corporate taxes through moves such as getting a post office box in a tax haven and claiming that as their headquarters.
And although Read is something of an evangelist for tax reform – who has long promised that Pfizer would consider an inversion – he also pointed out that “we’re not doing this simply as a tax transaction”, noting that the company gets a way to grow in the USA and overseas with the deal. Currently, the drugmaker is paying an effective tax rate of 25%.
However, Pfizer’s chief executive, Ian Read, said that their company understands the attention the government gives to such inversions, but they chose to do the merger regardless.
It would be the sector’s biggest deal, topping Pfizer’s 1999 acquisition of Warner-Lambert for $111.8 billion.
Assuming that all $12 billion of cash is paid in the merger, Pfizer and Allergan said, it is expected that former Pfizer stockholders will hold approximately 56% of the combined company and Allergan shareholders will own approximately 44% of the combined company on a fully diluted basis.
The combined company will be called Pfizer plc. Pfizer’s shares had fallen 9.2 per cent.
Pfizer and Allergan said the combined company will have more than 100 mid-to-late stage programs in development, as well as greater resources to invest long-term in R&D and manufacturing. Still, investors had been hoping Pfizer would sell off the lower-margin business in 2017, a move now put off by the time required to integrate Allergan, Pfizer said.
Advertisement
JPMorgan Chase and Morgan Stanley and the law firms Cleary Gottlieb Steen & Hamilton; Latham & Watkins; and Arthur Cox are advising Allergan.
