Pfizer + Allergan: A $150billion combination

                                                                 Pfizer Inc. and Allergan Plc plan to announce a record merger agreement worth more than $150 billion as early as Monday, according to a person familiar with the matter, creating a drugmaking behemoth with products from Viagra to Botox and a low-cost tax base.
The boards of the companies were expected to sign off on the accord Sunday, said the person, who asked not to be identified because the discussions are private. Pfizer will exchange 11.3 shares for each Allergan share, said the person. Based on Friday’s closing price of a Pfizer share, the agreement gives investors a premium of about 27 percent above Allergan’s stock price on Oct. 28, before news of the companies’ discussions became public. Pfizer shareholders will get a small cash amount, the person said.

The transaction is structured so that Dublin-based Allergan is technically buying its much larger partner, a move that may make it easier for the company to locate its tax address in a lower-cost country. Pfizer Chief Executive Officer Ian Read will be the head of the new company, with Allergan CEO Brent Saunders in a high position, the person said.

Unprecedented Deal

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 $60 billion.
The deal would be 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 $116 billion. And if the new company is able to establish itself abroad for a lower tax rate, a controversial process called an inversion, it will be the largest such move in history.
The U.S. Treasury Department has increasingly targeted such strategies, most recently announcing new guidance on how it will value assets owned by U.S. companies that undertake inversions. The U.S. has the highest tax rate for businesses in the world, at 35 percent, and is one of the only countries to tax corporate profits wherever they are earned. Previous moves by the U.S. Treasury have derailed other proposed inversions, including AbbVie Inc.’s plan to buy Ireland’s Shire Plc for an estimated $52 billion.

Facilitate Split

An agreement may also facilitate the widely discussed potential for Pfizer to reconfigure itself by splitting the newly enlarged company into two: one focused on new drug development, the other on selling older medications.
Pfizer earlier this year bought Hospira Inc., the maker of generic drugs often administered in hospitals, in a transaction valued at about $17 billion. The deal bolstered Pfizer’s established-drugs business, which combines strong cash flow and slow growth.
Allergan itself has been recently transformed, created through an acquisition by Actavis Plc that kept the Allergan name. The company agreed to sell its generics business to Israel’s Teva Pharmaceutical Industries Ltd. for about $40.5 billion and has been on a buying binge of its own. It now has more than 70 compounds in mid-to late-stage development.
If the transaction gets regulatory approval, it will be a vindication for Pfizer CEO Read. A 62-year-old who was born in Scotland, he has been open about his pursuit of a lower tax rate even after a foiled attempt to acquire London-based AstraZeneca Plc last year.
Read, who has led Pfizer for almost five years, has said the U.S. corporate tax rate makes it tougher for American companies to compete. Presidential candidates including Donald Trump have called for changes in corporate tax rates to keep U.S. companies from moving. Carl Icahn, the billionaire investor known for picking fights with corporate executives, has said he will put $150 million into a new super-PAC that would push politicians for changes to the way U.S. corporations are taxed on their earnings abroad.
For Saunders, 45, the merger is the culmination of a rapid-fire series of multibillion-dollar deals that took him from obscurity to become one of the industry’s most powerful people. Allergan was the result of an acquisition by Saunders’s company, Actavis Plc, of the old Allergan Inc. earlier this year. Saunders had joined Actavis after it acquired Forest Laboratories Inc. in 2014.
In a prominent position at the combined company, Saunders would be a favorite to succeed Read eventually.
“Honestly, I go into one of these deals, big or small, not focused on my future but on trying to build the best future for the company,” Saunders said in an interview last month. “Once that’s set, I look at what I can do and how I can add value.”