Pfizer’s tax-driven Allergan merger

Pfizer Inc on Monday said it would buy Botox maker Allergan Plc in a deal worth $160 billion to slash its US tax bill, rekindling a fierce political debate over the financial maneuver. To avoid potential restrictions, the transaction was technically structured as smaller Dublin-based Allergan buying Pfizer, although the combined company will be known as Pfizer and continue to be led by Mr Read.

In what would be the biggest inversion ever, New York-based Pfizer could save hundreds of millions in USA taxes annually because it would move its tax headquarters to Ireland, where Allergan is based.

U.S. politicians condemned Pfizer’s deal with Allergan as a tax dodge on Monday (23 November), bringing another round of hand-wringing in Washington over the corporate tax code, though legislative action before 2017 is unlikely.

“The Pfizer-Allergan merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs”, Sanders added. The insiders said Allergan shareholders would receive 11.3 Pfizer shares for each of their holdings under the deal. It would be the sector’s biggest deal, topping Pfizer’s 1999 acquisition of Warner-Lambert for $111.8 billion.

Hilary Clinton said in a statement yesterday that “for too long, powerful corporations have exploited loopholes that allow them to hide earnings overseas to lower their taxes”.

More than 50 similar deals, called inversions, have been done over three decades by well-known companies such as Medtronic, Fruit of the Loom and Ingersoll Rand.

The merger is expected to close in the latter half of 2016, and the combined company is projected to have annual sales of about $64 billion. Many companies – Medtronic included – have shifted their home bases to Ireland to take advantage of these tax rates – and more will likely follow. Last year, the top five pharmaceutical advertisers in the U.S. spent $2.5 billion on measured media, up from about $2.2 billion in 2013, Kantar Media said. Pfizer stockholders get one share of the combined company for each of theirs.

The transaction represents 30 percent premium based on Pfizer’s and Allergan’s share prices as of October 28, 2015. Aside from tax, executives expect the deal to result in cost savings of $2 billion, sparking fears of job losses both in the United States and Ireland.

“Even though the Obama Administration doesn’t have the legal powers to block the Allergan transaction, it should seek to shame Pfizer and its board of directors into calling it off”, he writes.

Read will become the chief executive of the new Pfizer plc while Saunders will become chief operating officer with oversight of all Pfizer and Allergan’s combined commercial businesses manufacturing and strategy functions.

That logic didn’t stop the U.S. Treasury Department from last week rolling out new rules to tighten the reins on inversions for the second time in about a year.