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.
Photo: Bloomberg
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.
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