Pfizer-Allergan deal panned by Clinton, Sanders

“U.S.-based corporations have to pay tax overseas to the country in which they’re doing business and back to the United States when they bring the money back”, said Kyle Pomerleau, the director of federal projects at the Tax Foundation. The entire slate of Democratic presidential hopefuls slammed the deal with Hillary Clinton saying taxpayers would be left “holding the bag” and Bernie Sanders calling it a “disaster” of a deal that would drive up drug prices.

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.

Pharmaceutical companies Pfizer and Allergan have announced a record-breaking $155bn (£100bn) deal that looks sure to prompt an global row over corporate tax avoidance. It also needs the go-ahead from shareholders of both companies.

In a telephone briefing to analysts, Pfizer said the deal would generate $2bn in savings over the next two years. Last year, Treasury Secretary Jack Lew issued a number of measures to disincentivize inversions, including a provision that the shareholders of the US-based firm cannot own 60% or more of the new company.

How can the inversion move forward if the Treasury has introduced rules to deter companies from using the tax strategy? Pfizer’s tax rate in the U.S. is now about 25 percent. Each new deal puts pressure on smaller rivals to bulk up.

Even though this deal is structured in a way that looks like Allergan is purchasing Pfizer, the company’s control will be retained by Pfizer.

“They’re basically renouncing their citizenship and declaring that they’re based somewhere else, just to avoid paying their fair share”, Obama said at the time.

The deal is expected to close in the second half of 2016. That includes work on cures for Alzheimer’s disease, Parkinson’s, cancer and other difficult-to-treat illnesses.

Pfizer had a global payroll of 78,000 at end 2014 and Allergan had about 30,000 in June 2015. As noted in the companies’ shared release, the “combined company is expected to maintain Allergan’s Irish legal domicile”.

Having been subjected to much restructuring, from corporate level right down through the company, in the lead up to last year’s acquisition by Actavis (which subsequently re-branded as Allergan), staff at Allergan’s Westport facility will have to wait and see what this deal holds for the operation in the town. The Pfizer-Allergan bargain is likely to settle doubts that consumers would pay a lot more for medicines as competition lowers among insurers, sellers and manufacturers.

Investors didn’t much like the deal. Target company Allergan closed 3.4-per cent lower after the deal announcement.