Pfizer Inc. and Allergan PLC said they would combine operations in a stock transaction worth about US$160 billion, creating a drugmaking behemoth with products from Viagra to Botox and a low-cost tax base.
In fact, the tax-efficient component of the deal has leading U.S. Democratic presidential candidates Hillary Rodham Clinton and Bernie Sanders bashing the merger plans by Pfizer and Allergen to join together.
The merger is a so-called inversion, in which U.S. companies looking to lower their tax bills combine with a company in a country with a lower tax rate, in this case, Allergan, which is headquartered in Dublin. That merger potentially saves the U.S. company millions in U.S. taxes on global earnings.
Clinton says that will leave “U.S. taxpayers holding the bag” and plans to propose steps to prevent inversions.
Sanders says the merger would be a “disaster” for U.S. consumers paying high prescription drug costs. He says the Obama administration should exercise its authority to stop the merger.
Several U.S. drugmakers have performed inversions in recent years.
In the deal, Allergan will be valued at US$363.63 a share in the transaction, the companies said in a statement on Monday. That represents a premium of more than 30 per cent.
Pfizer, based in New York, makes medications including Viagra, pain drug Lyrica and the Prevnar pneumococcal vaccine, and Allergan produces Botox and the Alzheimer's drug Namenda. Together, barring any divestitures, the companies would be the biggest pharmaceutical company by annual sales, with about US$60 billion.
The deal is unprecedented on many levels.
It's the largest acquisition so far this year. It's the largest ever in the pharmaceutical world, eclipsing Pfizer's purchase of Warner-Lambert Co. in 2000 for US$116 billion. And if the new company is able to establish itself abroad for a lower tax rate, it will be the largest such move in history.
Allergan shareholders will receive 11.3 shares of the combined company for each of their Allergan shares, and Pfizer stockholders will receive one share for each that they hold.