Pfizer and Allergan Announce Drug Maker Merger

In a $160-billion transaction, it plans to move its tax address from the U.S. to Ireland, if only on paper, by buying and merging into Allergan, a smaller, Dublin-based competitor.

Drugmaker Pfizer announced Monday that will acquire Allergan, the original maker of the Lap Band since sold, for more than $150 billion, dwarfing the biggest medtech corporate inversion the nation saw in 2014. It said, “We will maintain our global operational headquarters in NY City”.

According to a source close to the deal, Pfizer wanted to beat implementation of new US Treasury measures which will make it more hard for U.S. companies to escape taxes via a merger which moves their tax home overseas, a mechanism called a “tax inversion”.

The deal values each Allergan share at $363.63, more than a 30% premium to the price before The Wall Street Journal reported the deal talks late last month.

It is unclear how this deal will impact the companies’ agency relations. Pfizer shares closed 2.64 percent lower at $31.33 and the Allergan shares closed down 3.44 percent at $301.72. The U.S. Treasury Department has been cracking down on this type of merger and President Obama has called these deals unpatriotic. The acquisition will help Pfizer to slash its tax bill in the US, but will certainly spark outrage on Capitol Hill and the White House over the maneuver to lower its corporate tax bill.

This means that Pfizer’s tax domicile relocates offshore, thereby taking advantage of Ireland’s much lower corporate tax regime.

Democratic frontrunner Hillary Rodham Clinton said Monday that, if elected, she would put forward proposals to prevent such mergers.

Gustav Ando, research director for IHS Life Sciences, a business information and consulting company, said that he thought the deal was carefully structured and likely to be approved, but added that it may receive even more scrutiny due to the current public and political outrage over high drug prices for the pharmaceutical industry.

Allergan CEO Brent Saunders will become president and chief operating officer of the combined company with oversight of all commercial businesses.

Clinton said today she would propose steps to prevent tax inversions and called on regulators to take tougher action.

Pfizer stockholders can get cash or one share of the combined company for each of their shares, but the aggregate amount of cash must range from $US6 billion ($8.34 billion) to $US12 billion ($16.68 billion). In New Jersey, the sector’s reputation as the “Medicine Chest to the World” has lost its luster in recent years through mergers, competition from generic drugs and a stagnant pipeline of blockbuster drugs.

On a conference call with analysts, Pfizer said the merger would give it enhanced access to its tens of billions of dollars parked overseas and allow for more share buybacks, dividend payments and business development.

Perhaps anticipating its deal would draw fire, Pfizer CEO Ian Read sent a letter on Monday to senior senators.

It could end up being the world’s second-largest merger following British telecom company Vodafone’s purchase of Germany’s Mannesmann for $172 billion, including debt, in 1999.