LONDON-WASHINGTON — 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 US government policies discouraging such deals.
The deal, the biggest merger announced this year and, if completed, the second-largest takeover yet, combines Pfizer’s vast portfolio of drugs and vaccines addressing cancer, rheumatoid arthritis and other ailments, with smaller rival Allergan’s holdings that include antiwrinkle treatment Botox as well as treatments for eye care, dermatology and urology.
Executives emphasised the benefits of marrying the two companies’ drug portfolios and research departments and achieving about $2bn in operational savings. The companies also said the transaction would lower Pfizer’s tax rate to the Irish levy of 17%-18%.
Pfizer executives said they were confident the deal would not flout US rules discouraging so-called inversions, including new measures announced last week by the Treasury department. Pfizer’s tax rate in the US is about 25%.
“The proposed combination of Pfizer and Allergan will create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world,” Pfizer’s CE Ian Read said. Just last Thursday, the Treasury department announced further steps to block companies from undertaking transactions based on “a desire to shift the tax residence of a parent entity to a low-tax jurisdiction simply to avoid US taxes”.
Democratic presidential candidate Bernie Sanders condemned the deal and urged the Obama administration to block it.
“The Pfizer-Allergan merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs,” Mr Sanders said.
US President Barack Obama has called inversions unpatriotic and has tried to crack down on the practice. To avoid potential restrictions, the transaction was technically structured as smaller Dublin-based Allergan buying Pfizer, although the combined company will be known as Pfizer and continue to be led by Mr Read.
The merger will delay by two years a decision whether to split itself into two. That move, which could sell off Pfizer’s lower-margin unit of products facing generic competition, was expected by late 2016.
Allergan CEO Brent Saunders will become president and chief operating officer of the combined company with oversight of all commercial businesses.
Mr Read, who has long sought to slash Pfizer’s US tax rate, said the deal would help put the company “on a more competitive footing”. The company was expected to pay about 25% in corporate taxes this year, compared with about 15% for Allergan.
The deal comes about 18 months after the failure of Mr Read’s initial attempt at an inversion, a $118bn bid to acquire Britain-based AstraZeneca that ran into staunch opposition from that company’s management and UK politicians.
On a conference call with analysts, Pfizer said the merger would give it enhanced access to its tens of billions of dollars parked overseas over time and allow for more share buybacks and dividend payments.
Mr Saunders said the combination would provide access to about 70 additional worldwide markets for Allergan products.
The merger, scheduled for completion in the second half of 2016, will deliver more than $2bn in cost savings in the first three years, the companies said.
It was not immediately clear how many jobs would be lost as a result of the deal.
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 values Allergan shares at $363.63 each, about 16% more than their closing price of $312.46 on Friday.
Pfizer shareholders would have control of 56% of the combined company.
The US Treasury, concerned about losing billions of dollars in tax revenue, has been taking steps to limit the benefits of increasingly popular tax inversion deals, but it admitted last week that it would take legislation from Congress to stop such manoeuvres.