Following weeks of speculation Pfizer has now confirmed that it is merging with Botox-maker Allergan in a transaction valued at $160 billion, making it the biggest pharma deal in history.
Under the definitive merger agreement, which has won unanimous support from both boards of directors, the companies will combine under Allergan, which will be renamed Pfizer, to create the world’s leading drugmaker by sales.
Pfizer says the merger will significantly enhance its innovative businesses through a growing revenue stream from Allergan’s “durable and innovative flagship brands”, as well as enhance its R&D capabilities in both new molecular entities and product-line extensions.
But the move will also see the drugs giant relocate its headquarters from the US to Ireland, and thus benefit substantially from a lower corporate tax rate - an example of a so-called inversion deal which are becoming increasingly unpopular with politicians across the Pond.
Democratic presidential candidates Hillary Clinton and Bernie Sanders have both voiced strong objections. Clinton says Pfizer’s move “has left the US tax payer holding the bag” and has called for stronger actions to prevent firms from moving their earnings offshore, while Sanders said the deal would not only allow the drugs giant to “hide its profits overseas” but also impact those who need prescription medications, reports The Hill.
Rae Ellingham, a research analyst at Charles Stanley, said if the merger goes ahead as planned, “we would expect that tax inversion rules may be tightened even further and potentially new legislation introduced”.
According to Pfizer, the transaction should deliver more than $2 billion in operational synergies over the first three years after closing. “Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients, direct return of capital to shareholders, and continued investment in the US, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry,” noted chief executive Ian Read.
But on a note of caution, Paul Heugh, chief executive of Skarbek Associates, said that while “$2bn of savings in the first three years, together with an attractive tax inversion sounds like a compelling reason for a merger, there is no getting away from the fact that less than half of deals fail to attain the objectives stated in the merger announcement”.
“Synergies carry all sorts of hidden risks that are rarely considered sufficiently and most often not priced into the deal,” he said.