Pfizer, Allergan agree $160bn merger

Pfizer and Allergan on Monday announced a merger worth more than $150 billion, creating the world’s biggest drug maker and moving a top American corporate name overseas, at least for tax and legal purposes.

Their combined medicine chest would put Pfizer staples such as impotence treatment Viagra, cholesterol fighter Lipitor and nerve pain treatment Lyrica alongside Allergan’s Botox wrinkle treatment, Alzheimer’s drug Namenda and dry-eye medication Restasis.

One business would focus on newer products, such as Pfizer’s breast-cancer drug Ibrance and Allergan’s blockbuster Botox, and have sales the companies project will grow in the double digits. When the deal is done, the combined company will rename itself Pfizer and it will be considered an Irish company because Allergan is based in Ireland.

Pfizer could take advantage of a much lower corporate tax rate in Ireland than here in the U.S.

The agreement will nearly certainly face some intense scrutiny from US and European regulators, noted USA Today.

Democratic presidential hopeful Hillary Clinton said inversion deals like Pfizer’s “will leave U.S. taxpayers holding the bag” and called on Washington to “make sure the biggest corporations pay their fair share”.

“Two billion dollars of savings in the first three years, together with an attractive tax inversion sounds like a compelling reason for a merger”, Heugh said, although warned that often mergers did not succeed in their primary objectives.

The U.S. Treasury, concerned about losing billions in tax revenue, has been taking steps to limit the benefits of tax inversion deals, but it admitted last week that it would take legislation from Congress to stop such moves.

The companies expect that shares of the combined entity will be listed on the New York Stock Exchange and trade under the “PFE” ticker.

Republicans also denounced the deal, which would slash Pfizer’s corporate tax rate to 17 or 18 percent, according to company leaders, compared with its effective 25 percent rate.

“It allows us to continue to sustain an investment of approximately $9 billion mainly spent in the United States”, Ian Read told CNBC in a joint interview with Allergan CEO Brent Saunders after the announcement.

Although the rebranding will be called Pfizer Plc, legally, the company’s combination will be under Allergan Plc. Chicago-based AbbVie and Dublin-based Shire called off a $54 billion inversion deal after the Treasury issued those rules.

But the mega-deal could spark a “major political backlash”, predicted Gustav Ando, an analyst at consultancy IHS, who cited rising scrutiny of high drug prices and pharmaceutical industry profits.

The transaction represents more than a 30% premium based on Pfizer’s and Allergan’s unaffected share prices as of October 28, 2015, it added.

Many industry analysts and investors believe Pfizer could be bulking up with Allergan’s fast-growing brands as a prelude to splitting by 2017 into two companies – one selling high-margin branded drugs and one selling affordable generics that have dragged down Pfizer results over the past few years.