In a busy year for mergers, the biggest M&A deal of 2015—in fact, the biggest merger in 15 years—was confirmed today. For the grand sum of about $160 billion, Pfizer and Allergan can now call themselves the world’s largest drug company—pending regulatory approval, of course. The two pharmaceutical giants are pairing up in the largest merger in healthcare history and a transaction that is also a big win for the Irish.
As a result of the record deal announced Monday, Viagra-maker Pfizer will reincorporate itself in Ireland and save an estimated $1.4 billion annually in taxes, as the nation has a lower corporate tax rate than the United States, USA Today notes. Ireland, with its corporate-friendly Irish Takeover Rules, is already the corporate base for Botox-maker Allergan, allowing it to pay British tax rates, although it does a lot of work in Parsippany, New Jersey.
The combined entity will eclipse Johnson & Johnson, currently the largest pharma company in the world by market value, according to EY data. The new drug company would be “the world’s biggest with $63.5 billion in yearly sales, 110,000 employees and $9 billion in annual research spending,” the Wall Street Journal noted.
The transaction also follows a history of failed bids to make a deal. As CNN notes, “In 2014, Pfizer pursued a takeover of the British pharmaceutical company AstraZeneca. But the American drugmaker had to drop its bid after AstraZeneca’s board repeatedly said the offers were not sufficient.”
The medical companies’ mega-merger is structured so it legally appears that Allergan is buying Pfizer, although it is actually the other way around. That action will surely make it a topic of conversation, at least in the short term, in the presidential race as candidates try to present themselves as crusaders who aren’t swayed by any corporate financial maneuvering.
As noted in the press release, Pfizer (whose CEO, Ian Read, has been outspoken about tax reform) and Allergan highlighted how their combined brand portfolio and organizational strengths will compliment each other:
Through this transaction, two great companies will come together to create a new global biopharmaceutical leader with best-in-class innovative and established businesses. These businesses will be positioned to make more medicines and therapies available to more people around the world, bring together greater resources to invest in R&D, manufacturing and business development, deliver value to shareholders, and support a large base of highly skilled workers worldwide.
Pfizer’s innovative businesses will be significantly enhanced by the addition of a growing revenue stream from Allergan’s durable and innovative flagship brands in desirable therapeutic areas such as Aesthetics and Dermatology, Eye Care, Gastrointestinal, Neuroscience and Urology. The combined company will benefit from a broader innovative portfolio of leading medicines in key categories and a platform for sustainable growth with diversified payer groups. With the addition of Allergan, Pfizer will enhance its R&D capabilities in both new molecular entities and product line extensions. A combined pipeline of more than 100 mid-to-late stage programs in development and greater resources to invest in R&D and manufacturing is expected to sustain the growth of the innovative business over the long term. Through product approvals, launches and inline performance the combined company aspires to be a leader in growth.
While it may prove the luck of the Irish, creating more jobs and boosting the economy in the small EU nation, the transaction has raised an outcry and set the White House grumbling.
President Obama called the tax inversion deal “unpatriotic” while the US Treasury Department and Internal Revenue Service have already announced rules to restrict these types of mergers from happening, the New York Times notes. Reuters comments that the move is “smack in the face for politicians on both sides of the American political aisle.”
— Pfizer Inc. (@pfizer) November 23, 2015
“US companies are currently taking advantage of an environment that allows them to move their tax residence overseas to avoid paying taxes in the US, without making significant changes in the nature of their overall operations,” Treasury secretary Jack Lew said over the weekend, according to The Guardian.
The outspoken Read, who is poised to become CEO of the merged companies, isn’t bothered.
“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 United States, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry,” said Read, as CNBC reports.
He also defended the merger on Monday on a call with analysts. “We’ve assessed the legal, regulatory and political landscape and are moving forward with our strategy to combine these two great companies for the benefit of the patients and to bring value to shareholders,” Read said. “That is our obligation.”
As WSJ points out, “Pfizer executives have for years considered splitting the company, but they have been deterred by concerns that its businesses may not be large enough to stand alone. Now, with Allergan, the company would have strength in both high-cost, high-growth drugs as well as generic, lower-cost drugs to make such a split.”
Below, Read explained to the Wall Street Journal financial editor Dennis Berman about how he was contemplating a spin-off only three weeks ago: