The $160 billion agreement between US-based Pfizer and Ireland-based Allergan has officially been made, according to a statement released by the companies on Monday. The merger will result in the largest pharmaceutical company in the world, and will most likely see Pfizer’s relocation overseas.
Pfizer will pay $363.63 per share of Allergan stock, paying between $6 billion and $12 billion in cash. Pfizer will also contribute 11.3 shares for every one share of Allergan bought in the deal. Surprisingly, Brent Saunders – Current CEO of Allergan – won’t be replacing Ian Read as the head of the combined pharmaceutical company.
Saunders will reportedly work closely with Read as the president and chief operating officer of the joint venture. He’ll also have a seat on the merged company’s board alongside Paul Bisaro – Allergan chairman and former CEO.
Among the many perks of the deal is a tax inversion for Pfizer when it moves its headquarters from New York to Dublin. According to Pfizer’s estimates, their tax rate will be around 17 to 18 percent within a year after the deal has been signed. Pfizer’s current tax rate – the highest in the pharmaceutical industry – is around 25 percent, meaning the company will save as much as 8 percent in taxes.
In order to try to get around the government’s inversion laws, the merger will be structured in such a way so that the smaller Allergan will technically be buying out the larger Pfizer. The US Treasury Department issued new rules to discourage companies from performing tax inversions as recently as last week.
According to Bernstein analyst Tim Anderson, the new rules “do not seem to materially impact” the finalized Pfizer-Allergan merger. The companies still have a few regulatory hurdles to jump – including securing antitrust approval from regulators around the world – according to The Wall Street Journal.
If the two companies are successful in evading federal attempts to block the deal from going through, the pharmaceutical sector will see the largest merger in industry history. Pfizer and Allergan – whose combined income for 2014 surpassed $60 billion – expect their joint venture to bring in over $25 billion in annual operating cash flow, starting at the beginning of 2018.
Despite the efforts put into this megamerger, industry analysts don’t expect the merged companies to stay as one entity for very long. The company – which will take on Pfizer’s name – is expected to split up into two distinct businesses, according to Read’s long-term plans.
One company is expected to focus on drugs nearing patent expiry, while the other will control pharmaceuticals with a higher degree of intellectual property (IP) protection. In September, Pfizer acquired Hospira for $15 billion, in a step towards their goals and an effort to boost their offerings in the biosimilar and sterile injectable space.
Sources:
- UPDATED: Pfizer finally gets its inversion with $160B Allergan megamerger agreement – http://www.fiercepharma.com/story/pfizer-allergan-agree-150b-plus-megamerger-wsj/2015-11-23
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