Allergan shares surge on Pfizer takeover talk

Shares of Allergan jumped 15 percent in premarket trading Thursday on reports that a deal may be in the works with Pfizer Inc., which would be just the latest in a string of massive pharmaceutical mergers.

Pharma giants Pfizer (PFE – Get Report) and Allergan (AGN – Get Report) confirmed this morning that they are in preliminary negotiations to complete a merger, after The Wall Street Journal reported on a potential tie-up last night. Allergan, which was approached by Pfizer, has a market value of more than $110 billion alone.

Allergan, which declined to comment, became the US’ third-largest generic drugmaker after combining with Actavis in March.

Shareholders for Allergan, however, seemed to like the idea of being absorbed into Pfizer’s fold.

Finally, an acquisition of Allergan would allow Pfizer to re-domicile, a move which is consistent with management’s commentary during its earning call earlier this week.

“If markets don’t tighten financial conditions for them, if the US data remain firm, if global events don’t scare them and if the sun shines every day, the Fed will raise rates at their December meeting”, said Juckes, in a note to clients.

With a combined market value exceeding $US330 billion ($460 billion), a transaction between the two drugmakers could cap a busy year for deals in the pharmaceutical industry, with more than $US200 billion in transactions announced.

Allergan said it would make another announcement “when appropriate”.

A U.S. attempt to crack down on such tax avoidance deals led to the collapse of AbbVie Inc’s bid to buy Shire PLC, but it is unclear whether those rule changes would preclude potential tax advantages from a Pfizer-Allergan deal.

Allergan maintains a hub for its eye-care and aesthetics business lines in Irvine; the parent company is based in Dublin, Ireland, for tax purposes and operates out of New Jersey.

Pfizer spent months in the spring of past year pursuing another top 10 drugmaker, Britain’s AstraZeneca PLC, in an attempted inversion, but those talks eventually collapsed when the two sides couldn’t agree on a price. As a result, USA companies with big Irish subsidiaries often pay a tax rate in the low single-digits on those units’ profits.

Pfizer shares have risen 14% in New York this year and Allergan has gained 12%, both outperforming the Standard and Poor’s Index’s 1.5% advance. It’s done three sizeable deals since 2000, acquiring Warner-Lambert and Pharmacia before paying a whopping $68 billion for Wyeth in 2009.

It also wouldn’t be the first time for Pfizer and Allergan.

Between 1994 and 2014, Pfizer spent about $220 billion on mergers and acquisitions.

Allergan added it remains committed to its $40.5 billion deal to sell its generics business to Teva Pharmaceutical Industries Ltd.