Pfizer acquires Allergan for $160 billion

Allergan (AGN – Get Report) and Pfizer (PFE) announced earlier this morning that they will merge in a deal worth about $160 billion, creating the world’s biggest drugmaker.

Allergan, best known for its anti-wrinkle treatment Botox, also makes Alzheimer’s drug Namenda and dry-eye medication Restasis.

To try to avoid U.S. Treasury rules created to deter so called tax inversion deals, the transaction is engineered so the smaller Allergan will acquire the larger Pfizer.

Allergan shareholders will receive 11.3 shares of the combined company for each of their Allergan shares, and Pfizer investors will receive one share of the combined company for each of their Pfizer shares.

Last year, Pfizer unsuccessfully tried to buy British drugmaker AstraZeneca Plc in a roughly $118 billion deal that would have involved an inversion. It’s the largest ever in the pharmaceutical world, eclipsing Pfizer’s purchase of Warner-Lambert Co.in 2000 for $116 billion. And it places the companies squarely in a presidential election debate over efforts by USA companies to obtain lower tax rates by using mergers to move their headquarters overseas.

And since Pfizer’s Chief Executive Ian Read, 62, will be CEO of the combined company, and Allergan’s current CEO Brenton Saunders, 45, will be Read’s deputy, The Guardian speculates that the merger can be considered as an inversion. Last week, the Treasury Department released new rules aimed at putting a stop to tax inversions, though they “do not seem to materially impact” the Pfizer-Allergan hook-up, Bernstein analyst Tim Anderson wrote in a recent note to clients.

Under the terms of the proposed transaction, the businesses of Pfizer and Allergan will be combined under Allergan plc, which will be renamed “Pfizer plc”. It will be a so-called “inversion” that has caused much concern and change of regulations in the U. S. Had Pfizer reported its foreign earnings like many other us corporations instead of utilizing foreign reinvestments and deferred tax liabilities, its tax rate would actually be as low as 7.5%.

In a devastating turn of events for United States tax incomes, Pfizer, headquartered in NY, will be able to profit from Irish taxation laws when merged with Dublin-based Allergan. Generic competition is expected to cut Pfizer’s sales by £18.5bn from 2010 through next year.

The deal enhances offerings from both Pfizer’s faster-growing branded products business, with additions like Botox, and its established products unit. All 11 of Pfizer’sdirectors will serve on the board of the combined business, along with four Allergan directors.

Read, who has led Pfizer for nearly five years, has said the USA corporate tax rate makes it tougher for American companies to compete.

Burger King made headlines past year when it bought Canadian doughnut chain Tim Hortons and moved its address to Canada.

Allergan’s previously announced deal to sell its generic drug division to Teva Pharmaceutical Industries, Ltd., is still expected to be completed in the first quarter of 2016.