Pfizer And Allergan Deal Approved, But May Be Stopped By U.S. Government


Pfizer and Allergan have agreed on the proposed terms of a $150 billion merger deal, set to create the largest drug company on the planet. Late Sunday, both company boards voted to move forward with the transaction.

In October, the Inquisitr reported that the two drug giants were in talks to merge. As patents are expiring on key drugs like Lipitor, Pfizer has been on the hunt to buy another company to increase its product lines. Combining with Allergan, Pfizer will be adding the popular anti-wrinkle treatment, Botox, as well as dry-eye treatment Restasis, to its portfolio.

Maker if Botox, Allergan, set to merge with Pfizer
[Photo by Don Murray/Getty Images]
The details of the proposed Pfizer and Allergan deal have been released by the New York Times. Allergan shareholders will receive $363.63 a share, or 16 percent higher than Friday’s closing Allergan stock price. However, Pfizer shareholders will retain majority ownership of the new combined company.

Pfizer CEO, Ian Read, described the impact and significance of the deal.

“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. Allergan’s businesses align with and enhance Pfizer’s businesses, creating best-in-class, sustainable, innovative, and established businesses that are poised for growth.”

Yet, the details of the agreement may come with some additional and unwanted scrutiny of the U.S. government. Known as an “inversion” on Wall Street, often large domestic companies choose to be bought by a foreign company in order to avoid paying corporate taxes. Recently, the U.S. unveiled rules to make corporate inversions more difficult in an effort to deter such transactions.

Despite these new rules and potential government intervention, Pfizer and Allergan intend to move forward with the deal arranged as an inversion.

Allergan is based in Dublin, Ireland, where the corporate tax rate is much lower. The deal is structured in such a way that Allergan will technically be the buyer and the headquarters will remain in Ireland. The move will allow Pfizer to avoid a hefty tax bill.

Last year, the Viagra maker’s U.S. tax rate was 26.5 percent, and is estimated to be around 25 percent this year. By moving the company to Ireland, the company stands to save billions of dollars and potentially cut their rate by more than a third.

Read argues that structuring the Pfizer and Allergan deal as an inversion is necessary to remain competitive, especially when going up against other foreign companies that have a much lower tax rate.

Unless the U.S. steps in and stops the deal, the new company will be named Pfizer PLC. The drug giant will trade on the New York Stock Exchange under the ticker PFE. According to Business Insider, financial analysts expect the Pfizer-Allergan transaction to complete by mid-2016.

The new company will be the largest drug maker in the world, with an estimated $60 billion in sales.

Pfizer In Merger Talks With Allergan PLC
[Photo by Spencer Platt/Getty Images]
Pfizer is no stranger to making multi-billion dollar acquisitions.

Earlier this year, generic treatments manufacturer, Hospira, was acquired by Pfizer for $17 billion. Additionally, the drug behemoth bought their rival, Wyeth, for $68 billion in early 2009.

To try and further consolidate the drug business, Pfizer unsuccessfully attempted to buy competitor Actavis in 2014. Subsequently, Actavis merged with Allergan. So, as fate would have it, Pfizer will indirectly make that deal happen, as well.

Incidentally, many analysts speculate that the new combined company will seriously consider breaking into two separate entities after the deal is complete. One company will focus on higher-growth, brand-name treatments, while the other on slower-growing, established drugs.

With a deal worth $150 billion, the Pfizer and Allergan merger is one of many attention-getting takeovers this year. It has many Wall Street veterans keeping their eye on how the deal will turn out for both investors and consumers. However, this transaction stands out like a Las Vegas marquee, and may have an unwanted admirer, the U.S. government.

[Photo by Spencer Platt/Getty Images]

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