Pfizer-Allergan deal draws criticism as USA tax dodge

A $160 billion deal announced Monday to merge Pfizer and Allergan and create the world’s biggest drug company renewed the outcry in Washington over “inversions”, in which US corporations combine with companies overseas to lower their tax bill.

Following weeks of speculation Pfizer has now confirmed that it is merging with Botox-maker Allergan in a transaction valued at $160 billion, making it the biggest pharma deal in history.

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

The move allows the new firm – which would take Pfizer’s name and be headed by its current chief executive, Ian Read – to be headquartered for tax purposes in Dublin, Ireland, home of Allergan, to take advantage of the nation’s lower corporate-tax rate.

In light of this news, presidential candidate Hillary Clinton said she will propose new legislation to stop US companies from reincorporating internationally to lower their taxes.

Under the terms of the deal, Allergan shareholders will hold 44 per cent of the combined company at completion, while Pfizer will have 56 per cent.

Last year, Pfizer’s tax rate was about 26.5 percent, and it is expected to be about 25 percent this year.

U.S. President Obama has said that the tax inversions are unpatriotic and had attempted to crack down on them through the Treasury Department.

BTIG analyst Tim Chiang weighed in today with a cautious stance on the “Mega Inversion” deal between Pfizer Inc.

It is unclear how this deal will impact the companies’ agency relations.

It will also reignite debate in the pharmaceutical industry over the role of research and development, with Allergan chief executive Brent Saunders, a prolific deal maker and a sceptic of in-house drug discovery, joining the combined company. The deal caps a remarkable consolidation wave roiling the USA health care industry and creates the world’s biggest drugmaker by sales.

Allergan shareholders will get 11.3 shares of the new company for each of their shares.

According to Pfizer, the transaction should deliver more than $2 billion in operational synergies over the first three years after closing. The companies expect the deal will be completed by the second half of 2016, but antitrust regulators around the world will have to approve it. It would be led by Pfizer and to be domiciled in Ireland with executive offices too in the country, but the global operating headquarters would be in NY.

Consumers have reason to be concerned about the impact of the deal, which could affect prices for a few of the most widely used prescription and over-the-counter drugs.