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Monday, November 30, 2015

Pfizer + Allergan: Historic U$S 160 billion Inversion Merger

  • It would be the biggest healthcare deal of all time and birth the world's largest drugmaker
  • Pharma giants Pfizer and Allergan have agreed to a historic, record-shattering $160 billion ($363.63 per share) merger, the companies announced last Monday, November 23rd. That's a nearly 30% premium over the two companies' consolidated unaffected share prices on October 28. Allergan shareholders will own 44% of the combined company, meaning the firms are pursuing a so-called "60-40 split" that might make it more difficult to block the deal.
  • The deal will also shift Pfizer's tax base to Ireland, as it pursues the goals of an inversion merger, but the global headquarters will remain in Pfizer's hometown of New York City. Technically speaking, Allergan (the much smaller company) will be buying Pfizer in a reverse merger.
  • Pfizer CEO Ian Read will lead the combined entity, which would displace Johnson & Johnson as the largest drugmaker in the world, as CEO and chairman. Allergan chief Brent Saunders will serve as president and COO of the merged company and oversee sales, manufacturing, and strategy.
  • During a call with investors on Monday, Read and Saunders fielded questions about the companies' pipelines, the political dangers of pursuing such a massive deal, and a potential future split-up of the joint venture. Read has also already sent a letter to Senate Majority Leader Mitch McConnell (R-KY) in an attempt to preempt congressional scrutiny and declaring its commitment to the U.S.

2015 had already surpassed 2014 as the year with the biggest healthcare deals by value. Now, it's not even close.

"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 Pfizer chief Ian Read in a statement.

The makers of some of the best-selling pharmaceutical products in the world, including Viagra and Botox, are planning to join forces in an agreement that's bound to raise scrutiny from the White House and federal regulators. The Treasury Department announced last week that it would be releasing new rules to make it more difficult for pharma companies to pursue these precise types of domicile-shifting inversion mergers.

But it's unclear just how much change the government can unilaterally pursue under current tax law. The Treasury implemented a round of new anti-inversion rules last year as well, which did wind up preventing several big-name domicile-shifting deals. But other companies have still blazed forward with attempted inversions.

The agreement involves 11.3 Pfizer shares per Allergan share, in addition to some cash. Pfizer believes that it can lower its tax rate from about 25% to about 17% to 18% by moving its tax base—although the company has also come under scrutiny for its accounting methods. Had Pfizer reported its foreign earnings like many other U.S. corporations instead of utilizing foreign reinvestments and deferred tax liabilities, its tax rate would actually be as low as 7.5%.

The current iteration of Allergan is the result of 2014's largest pharma merger, where Actavis purchased the former company for about $65 billion. 

Antitrust regulators in the U.S. and abroad will have plenty of opportunities to challenge the deal. But if push comes to shove, Pfizer and Allergan could likely divest enough interests to pass regulatory muster. The two companies had combined sales of more than $60 billion last year and have negotiated a $3.5 billion breakup fee for the merger.

During an investor call regarding the deal, Read and Saunders also said that it would take three years of audited financials before the company could make any decisions regarding a potential split-up (a move that Wall Street has encouraged Pfizer to pursue for years). That means any potential announced split-up would likely not come until about 2018.

The two CEOs also discussed drug development and pipelines during the call. Saunders praised Pfizer's rare disease and oncology platforms, while Read insisted there would be minimal disruption to Allergan's ongoing R&D efforts on drugs such as the depression therapy Naurex, ophthalmology medications, and irritable bowel syndrome drugs.

The proposed merger will undoubtedly prove controversial amid the consistent and rapid clip of healthcare consolidations over the last several years—particularly as controversies over drug pricing have caught the nation's attention and spilled over into the 2016 presidential campaign as a major issue.

Read didn't seem fazed at the prospect of being blocked by regulators during Monday's investor call. But, knowing full well about the controversy bound to dog this proposed deal, he already sent a letter to the Senate Majority Leader insisting that "Pfizer and Allergan have deep roots and are committed to the United States, and a Pfizer-Allergan combination builds even more the combined companies’ presence in the United States. We will maintain our global operational headquarters in New York City."

The letter goes on to say that there will be more than 40,000 employees of the combined company across 25 U.S. states. There will also be about 5,000 employees in Ireland.

Allergan and Pfizer shares were both down about 3% in early morning trading on Monday.

Fuente: BioPharmaDIVE
 
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.·. Miguel Ángel MEDINA CASABELLA, MSM, MBA, SMHS .·.
The George Washington University's Representative at LatAm Forums & Fairs since 2001
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