Pfizer and Allergan have confirmed a $155 billion merger, which will create the world’s largest pharmaceutical company. Although the merger is awaiting regulatory approval, it is expected to be complete before 2017.
Pfizer Chairman of the Board and Chief Executive Officer Ian Read said the Pfizer-Allergan merger will benefit both companies. In addition to saving an estimated $2 billion over the first three years, the merger is expected to “create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and more therapies to more people around the world.”
Despite the expected benefits, the Pfizer-Allergan merger is not without controversy.
The BBC reports that the pharmaceutical giant will be headquartered in Dublin, Ireland. Therefore, the merger will save Pfizer millions of dollars in corporation taxes.
As defined by Investopedia, the process of “re-incorporating a company overseas,” in an attempt to avoid higher corporate income tax rates, is called corporate inversion. Although the practice is generally frowned upon by United States lawmakers, it is not uncommon.
As Pfizer is currently headquartered in New York City, its profits are subject to a corporate income tax rate of 35 percent. In Dublin, the corporate tax rate would be less than 20 percent.
Although Pfizer is receiving stark criticism for their blatant attempt to avoid paying United States corporation taxes, the company never cloaked their intentions.
In an October earnings call, Ian Read admitted tax rates were an important consideration in the proposed Pfizer-Allergan merger. As reported by Business Insider, Read said “to be successful in the future, [Pfizer needs] to have a competitive tax rate.”
During the same call, Read also addressed proposed legislation — which would impose strict limitations on corporate inversion. Most recently, the United States Treasury Department proposed several rules to limit the number of corporate inversions. However, they were not confirmed by Congress.
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Read underlined the fact that the Treasury Department’s rules “have not been triggered.” However, said he said he hopes the merger will be completed “under the current Congress” to avoid any complications.
Pfizer and Allergan will merge under Allergan in Dublin, and the pharmaceutical giant will be named Pfizer PLC. As reported by Wall Street Journal, the new company will maintain Pfizer’s current ticker symbol, PFE. Ian Read is expected to be the CEO of Pfizer PLC, and current Allergan CEO Brent Saunders is expected to be appointed as COO.
According to reports, the company’s board will be comprised of “11 current Pfizer directors and four current Allergan directors.”
As discussed on the company’s official website, Pfizer was founded in 1849 by Charles Erhart and Charles Pfizer. In the early years, Charles Pfizer & Company was a fine-chemical business — which operated its entire business out of a Brooklyn, New York, warehouse.
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The company’s first product was the first edible form of santonin — which was used to treat parasitic intestinal worms. Over the next 166 years, Pfizer grew to become one of the largest pharmaceutical companies in the world.
Pfizer’s most frequently prescribed pharmaceutical products include Celebrex, EpiPen, Lipitor, Viagra, Xanax, and Zoloft. Their consumer healthcare products include Advil, Centrum, ChapStick, Nexium, and Robitussin.
As stated on the official Allergan website, the pharmaceutical company is “a leader in a new industry model,” which they have dubbed Growth Pharma. In addition to a vast variety of generic products, the company’s most frequently prescribed products include Actonel, Botox, and Restasis.
In addition to combining the product lines and research opportunities, the Pfizer and Allergan merger will save millions of dollars in corporation taxes. Although corporate inversion is a point of heated controversy, Pfizer executives believe it makes good business sense.
[Image via Shutterstock/rCarner]