The biggest drugmaker company in the world will be created next year

Pfizer and Allergan are joining in the biggest buyout of the year, a US$160 billion stock deal that will create the world’s largest drugmaker.

The second biggest merger deal in the history of merger deals was announced overnight in the USA, in what might be the ultimate baby boomer transaction.

The merger was driven by tax considerations, with Pfizer carrying out what is known in the US business world as a tax inversion deal. If the deal is approved, it will be the largest example of tax-inversion, when a USA company merges with a company in a country with a lower tax rate and moves its headquarters there.

Bloomberg, which has a good explainer on inversions here, has described it as USA companies effectively “renouncing their citizenship”, although they typically do retain operational headquarters in America.

“This merger would be a disaster for Americans who already pay the highest prices in the world for prescription drugs”, Sanders posted on Twitter after the news of Pfizer’s move emerged.

Their combined medicine chest would put Pfizer staples such as impotence treatment Viagra, cholesterol fighter Lipitor and nerve pain treatment Lyrica alongside Allergan’s Botox wrinkle treatment, Alzheimer’s drug Namenda and dry-eye medication Restasis.

In NY, the Dow Jones Industrial Average fell 0.17 percent and the S&P 500 0.12 percent Monday as trading thinned ahead of the Thanksgiving holiday. In recent years billions of dollars have been lost by the government in tax revenue from similar inversions.

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

Saunders will serve as president and COO of the combined company, and Ian Read, Pfizer’s present chairman and CEO, will continue both of those roles with the new company.

“One business would focus on newer products, such as Pfizer’s breast-cancer drug Ibrance and Allergan’s blockbuster Botox, and have sales the companies project will grow in the double digits”, said the newspaper.

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

Currently, the U.S. corporation tax rate – where Pfizer is legally domiciled – is 39.1%, one of the highest among developed economies.

Last year, Pfizer’s attempted takeover of AstraZeneca failed, but was at least in part motivated by tax.

Several U.S. politicians have however raised concerns on the proposed merger.

The deal values Allergan shares at $363.63 each, about 16% more than their closing price of $312.46 on Friday. Amid political backlash over the looming Pfizer-Allergan announcement, Treasury rushed out new rules Thursday, but they focus on deals in which the overseas company’s shareholders end up with 20 to 40 percent of the combined corporation.

Similarly, Sen. Charles Schumer (D-N.Y.) called on Congress to rework US tax laws to prevent inversions (AP/Sacramento Bee, 11/23).

Under the agreement announced Monday, Allergan’s shareholders will own 44 percent of the stock, and Pfizer’s 56 percent.