US drug giant Pfizer is to buy Ireland-based Allergan for $168bn, setting a new record for a merger in the pharmaceuticals industry. The combined entity will have sales of around $64bn, a market value of $320bn and 110,000 employees. The deal is set to be the second-biggest in corporate history after Vodafone’s $180bn takeover of Mannesmann in 2000.
What the commentators said
“Setting pharmaceuticals apart from many other industries”, said The Economist, are the high costs and risks involved in developing new products. Meanwhile, more and more blockbuster drugs are coming off-patent and beginning to face competition. It has also become harder to find new blockbusters in the past few years. Bulking up by buying up the pipeline of another firm is therefore an appealing tactic.
These two look well matched, said The Daily Telegraph’s Julia Bradshaw. Pfizer, which makes Viagra, will get a boost from Allergan’s fast-growing skin and eye treatments, the most prominent of which is Botox. The companies’ “more mature, established” generic and branded portfolios also look “largely complementary”. But this isn’t about “big pharm sex appeal”, as Alistair Osborne put it in The Times, despite a drug combo that one would expect to find “at Hugh Hefner’s playboy pad”. Instead, “tax appeal” is what interests Pfizer CEO Ian Read – as you’d expect from someone who joined Pfizer as an auditor in 1978.
Allergan is based in Ireland, and this deal allows the new company to be domiciled in Ireland, slashing Pfizer’s tax rate from 26% to 18%. Pfizer is set to avoid US taxes on $128bn of overseas profits. This “tax inversion” deal will also allow Pfizer to return overseas cash to shareholders.
US politicians won’t take this lying down, said Nils Pratley in The Guardian. The government has already attempted a clampdown on tax inversion deals by US firms, and will not be impressed by the transparent attempt to get round the new rules by structuring the deal as a takeover by Allergan. What’s more, Pfizer has “prospered for decades” from the high US prices for prescription drugs, an issue Hillary Clinton has taken up.
Perhaps the likely political battles to come explain why Read buried the detail of the tax inversion deal in the eighth paragraph of the merger announcement rather than shouting it “from the rooftops”. Political controversy would, however, certainly be a reason why Pfizer’s share price “hasn’t even managed a cosmetic improvement” since the deal was announced.