Pfizer Inc on Monday said it would buy Botox maker Allergan PLC in a deal worth US$160 billion to slash its US tax bill, rekindling a fierce political debate over the financial maneuver.
The acquisition, which would create the world’s largest drugmaker and shift Pfizer’s headquarters to Ireland, would also be the biggest-ever instance of a US company re-incorporating overseas to lower its taxes.
US President Barack Obama has called such inversion deals unpatriotic and has tried to crack down on the practice.
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Democratic presidential nomination front-runner Hillary Rodham Clinton pledged to propose measures to prevent such deals. The merger was also slammed by her rival, US Senator Bernie Sanders, as well as by Republican presidential hopeful Donald Trump.
“The fact that Pfizer is leaving our country with a tremendous loss of jobs is disgusting,” Trump said in a statement.
It was not immediately known how many jobs would be lost as a result of the merger.
Shares of Allergan fell 3.4 percent and Pfizer closed down 2.6 percent as investors learned the merger, under discussion since late last month, would bring lower cost savings than they had hoped.
Pfizer also disappointed some investors by delaying by two years a decision on whether to sell off its division consisting of products facing generic competition.
To avoid potential restrictions, the transaction was structured as smaller, Dublin-based Allergan buying Pfizer, although the combined company is to be known as Pfizer PLC and continue to be led by Pfizer chief executive officer Ian Read.
The US Department of the Treasury, concerned about losing billions in tax revenue, has been taking steps to limit the benefits of tax inversion deals, but it said last week that it would take legislation from the US Congress to stop such moves.
The deal enhances offerings from both Pfizer’s faster-growing branded products business, with additions like Botox, and its older established products unit. Still, investors had hoped Pfizer would sell off the lower-margin business in 2017, a move now put off by the time required to integrate Allergan.
“The only thing I’d really say I’m disappointed about is Pfizer’s postponing their breakup,” Gabelli Funds portfolio manager Jeff Jonas said.
He called the delay decision “pretty conservative and a little late.”
Others were disappointed by other aspects of the deal, including the projected cost savings, and a lack of details on potentially increased share buybacks.
“Synergies of US$2 billion plus in the third year are less than the US$4 billion we had estimated in year one,” Cowen and Co analyst Steve Scala said.
On a conference call with analysts, Pfizer said the merger would give it enhanced access to its tens of billions of US dollars parked overseas and allow for more share buybacks, dividend payments and business development. The combined company would have annual sales of about US$64 billion.
Allergan CEO Brent Saunders is to become president and chief operating officer of the combined company, with oversight of all commercial businesses.
Read, who has long sought to slash Pfizer’s US tax rate, said the deal would help put the company on “on a more competitive footing” with overseas-based rivals.
The company had estimated it would pay about 25 percent in corporate taxes this year, compared with about 15 percent for Allergan.
Pfizer chief financial officer Frank D’Amelio said he expected a combined tax rate of 17 percent to 18 percent by 2017.
The deal comes about 18 months after the failure of Read’s initial attempt at an inversion, a US$118 billion bid to acquire Britain-based AstraZeneca PLC that ran into stiff opposition from that company’s management and UK politicians.
Saunders said the combination would provide access to about 70 additional worldwide markets for Allergan products, such as Botox wrinkle treatment, Alzheimer’s drug Namenda and dry-eye medication Restasis.
For 166-year-old Pfizer, Allergan would be the fourth huge acquisition over the past 15 years — one for each of the past four CEOs — following purchases of Warner-Lambert, Pharmacia and Wyeth.
This also caps a record year for healthcare mergers and acquisitions, taking their cumulative value this year to more than US$600 billion..
They include prior big deals involving Saunders, such as the US$70.5 billion acquisition of Allergan by Actavis, which then took the Allergan name, and an agreement to sell that company’s huge portfolio of generic drugs to Teva Pharmaceutical Industries for US$40.5 billion.
Allergan and Pfizer estimated their merger would increase earnings per share by 10 percent, excluding special items, in 2019 and add by a high-teens percentage rate in 2020.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The New Taiwan dollar and Taiwanese stocks surged on signs that trade tensions between the world’s top two economies might start easing and as US tech earnings boosted the outlook of the nation’s semiconductor exports. The NT dollar strengthened as much as 3.8 percent versus the US dollar to 30.815, the biggest intraday gain since January 2011, closing at NT$31.064. The benchmark TAIEX jumped 2.73 percent to outperform the region’s equity gauges. Outlook for global trade improved after China said it is assessing possible trade talks with the US, providing a boost for the nation’s currency and shares. As the NT dollar
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading