Pfizer & Allergan announce biggest healthcare deal in history

Pfizer Allergen Merger is the biggest deal in history

The historic merger is also one of the biggest ever so-called tax inversion deals, allowing the American drugmaker Pfizer to make considerable savings on overseas earnings by moving its base to Allergan’s home in Dublin, Ireland.

The US corporate tax rate of 39.1 per cent is among the world’s highest, and compares with Ireland’s rate of 12.5 per cent, reports The Times.

Pfizer said it expects to pay 17-18 per cent tax after the merger, compared with its current global tax rate of about 25.5 per cent.

The US Treasury introduced new rules to clamp down on inversions last week, but analysts believe that the deal could be structured to avoid contravening those regulations.

To help to secure that lower tax rate, the deal is being technically structured as a reverse merger, with Dublin-based Allergan buying the larger, New York-based, Pfizer.

Ian Read, the Scottish chief executive of Pfizer, will lead the combined company, and Brent Saunders, the chief executive of Allergan, will be his deputy.

Mr Read said: “Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients.”

The final terms of the deal include 11.3 Pfizer shares for every Allergan share. The offer values Allergan’s shares at $363.63 each, compared with the stock’s close of $312.46 on Friday.

The company will be listed on the New York Stock Exchange, maintaining Allergan’s Irish legal domicile but basing its global operations in New York.

The deal with Allergan is one of the largest mergers in history, surpassing Anheuser-Busch InBev’s $108 billion purchase of SABMiller. The largest was Vodafone’s purchase of Mannesmann, of Germany, in 2000 for $181 billion.

Buying Allergan will be a welcome boost for Pfizer, which failed to buy AstraZeneca last year for nearly £70 billion. The offer for AstraZeneca faced opposition from Astra’s board and politicians who feared an erosion of Britain’s science base.

The sector has been awash with “mega deals” as companies try to cut costs, create economies of scale and gain access to rivals with lucrative products under development. The pressure to consolidate has increased because blockbuster drugs are losing their patents and facing fierce competition.

In Pfizer’s case, it is suffering from the expiry of patents for Lipitor and Viagra. The merger with Allergan, the company behind Botox, is likely to bolster Pfizer’s growth prospects should it decide to sell or spin off products that have gone off-patent, analysts have said.

The merger will create a pharmaceticuals giant, with more than 60 drugs and near to $65 billion in combined revenue.

For this reason, many analysts believe that Pfizer will split late next year. For the past three years it has published financial data treating its “established products” division, which sells generic medicines, and its “innovative” patent-protected medicines division as if they were separate.

In announcing today’s deal, it said it expects to make a decision about a potential separation of the combined company’s innovative and established businesses by no later than the end of 2018.

Allergan’s shares were down 1.7 perc ent in premarket trading, while Pfizer’s were down 2.1 per cent.