Pfizer gets OK for $160bn Allergan acquisition
The deal will allow chief executive Ian Read to register Pfizer in Ireland, a tax inversion that will cut billions of dollars from the US company’s annual bill. The company plans to slash its tax rate from around 25% to 17-18% within the year. Experts had speculated Pfizer might manage to bring the rate below 7.5%, the lowest of any multinational.
Tax inversions have been criticised from many quarters, including Hillary Clinton, whose spokesperson said she is “committed to cracking down” on the accounting move which lets companies “leave the US on paper to game the tax system.”
Although the US Treasury tightened rules on tax inversions last week, financial experts believe the size of the companies involved in this deal, and Allergan’s high price tag, mean Pfizer will have no barriers to the tax-swapping strategy it has openly pursued for several years.
Split to follow?
Pfizer said it expects the combined company to find $2bn in synergies over the next three years and to reach cash flow of over $25bn from 2018. The mega-company will decide by 2018 whether to split its innovative and established businesses.
The all-stock transaction, expected to close in the second half of 2016, is based on $363.63 per Allergan share, and represents more than a 30% premium on the companies’ share prices at the end of October.
Allergan brings with it several licenced and clinical-stage drug candidates, especially in women’s health, anti-infectives, dermatology, eye care, gastrointestinal, neuroscience, and urology. The companies’ combined mid-to-late stage programmes total more than 100 candidates.
Brent Saunders, who has been CEO of Allergan since Actavis bought the botox-maker earlier this year and Allergan Chair Paul Bisaro will join Pfizer’s board.
Tax regulations
Following a spate of tax inversions in 2013 and 2014 – notably AbbVie’s acquisition of UK-based Shire – tax-motivated mergers have slowed this year.
At the Jefferies Global Healthcare Conference in London last week, Jefferies pharma analyst Tommy Erdei described the Pfizer-Allergan deal as “the big test case” which, if approved, “will leave the door open for others. We’ll see a pick-up again – it’s a demonstration politics won’t get in the way [of tax inversions.]”
He added that many pharma companies are still motivated to invert but, following the first round of acquisitions, are competing for targets. If the US puts regulations in place to prevent future inversions, “there could be a large delta between those who already have [and those which are banned],” he said. “Those guys could become more of a target because of their inability to convert [domiciliation].”
