Allergan and Pfizer to merge

The boards of pharma giants Pfizer and Allergan have given the thumbs up to a merger worth $160 billion. This merger, experts suggest, will help Pfizer escape the USA tax structure which now imposes roughly 25 percent corporate tax, In its new structure, Pfizer’s taxes may be cut to about 12% or even below that. It is also the biggest-ever tax inversion deal, an increasingly popular and controversial maneuver aimed at helping USA companies lower their taxes by reincorporating overseas.

Pfizer and Allergan said their deal would lead to an effective tax rate for the new company of about 17 to 18 percent. Their move of moving the establishment of the company to a place with lower tax rate is called inversion.

Effectively, Pfizer is seeking a reverse takeover of Allergan, which makes Botox, with the smaller company buying New York-based Pfizer, the Guardian reports.

In July, Anthem reached a $54 billion deal to buy rival Cigna to create the largest USA health insurance company.

In afternoon trade, shares of Pfizer dropped 2.5 percent to $31.38 and Allergan fell 2.8 percent to $303.62.

After this announcement was made, Hilary Clinton, a Democratic candidate said that such inversions must be prevented because they will ultimately erode the tax base of the country.

When this transaction is completed towards the end of 2016, these companies have both said that the Irish legal domicile of Allergan will be retained.

Speaking to reporters in Brussels yesterday, Mr Noonan, noting that both companies have large operations here, said the mega deal would not put Ireland’s tax regime into a bad light. But it will somehow benefit the majority since a lower tax rate could also mean cheaper drug selling prices.

“The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better”, said Brent Saunders, chief executive officer of Allergan PLC.

“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”, said the newspaper.

Pfizer shareholders would have control of 56% of the combined company.

The Pfizer boss, a long-time critic of U.S. tax policy, added: “I don’t think Ireland should be in any way ashamed of the set of capabilities it has that are attracting businesses to Ireland”.

Paul Heugh, the CEO of strategy execution specialists Skarbeck Associates, said the reduction in tax and savings would have been a compelling reason for Pfizer crucial in making the merger so attractive.

Pfizer ranked above big advertisers like Verizon and Toyota a year ago, and was just behind L’Oreal, Berkshire Hathaway and AT&T, according to Kantar Media.