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 The acquisition, which would create the world's largest drugmaker
and shift Pfizer's headquarters to Ireland, would also be the
biggest-ever instance of a U.S. company re-incorporating overseas to
lower its taxes. U.S. President Barack Obama has called such
inversion deals unpatriotic and has tried to crack down on the
practice.
Democratic presidential front-runner Hillary Clinton pledged to
propose measures to prevent such deals. The merger was also slammed
by her rival Senator Bernie Sanders as well as by Republican
presidential candidate Donald Trump.
"The fact that Pfizer is leaving our country with a tremendous loss
of jobs is disgusting," Trump said in a statement.
It was not immediately known how many jobs would be lost as a result
of the merger.
Shares of Allergan fell 3.4 percent and Pfizer closed down 2.6
percent as investors learned the merger, under discussion since late
October, would bring lower cost savings than they had hoped.
Pfizer also disappointed some investors by delaying by two years a
decision on whether to sell off its division consisting of products
facing generic competition.
To avoid potential restrictions, the transaction was structured as
smaller, Dublin-based Allergan buying Pfizer, although the combined
company will be known as Pfizer Plc and continue to be led by Chief
Executive Officer Ian Read.
The U.S. Treasury, concerned about losing billions in tax revenue,
has been taking steps to limit the benefits of tax inversion deals,
but it admitted last week that it would take legislation from
Congress to stop such moves.
The deal enhances offerings from both Pfizer's faster-growing
branded products business, with additions like Botox, and its older
established products unit. Still, investors had hoped Pfizer would
sell off the lower-margin business in 2017, a move now put off by
the time required to integrate Allergan.
"The only thing I'd really say I'm disappointed about is Pfizer's
postponing their break up," said Gabelli Funds portfolio manager
Jeff Jonas. He called the delay decision "pretty conservative and a
little late."
Others were disappointed by other aspects of the deal, including the
projected cost savings, and a lack of details on potentially
increased share buybacks.
"Synergies of $2 billion plus in the third year are less than the $4
billion we had estimated in year 1," said Cowen and Co analyst Steve
Scala.
On a conference call with analysts, Pfizer said the merger would
give it enhanced access to its tens of billions of dollars parked
overseas and allow for more share buybacks, dividend payments and
business development. The combined company would have annual sales
of about $64 billion.
The deal is expected to close in the second half of 2016.
TAX SAVINGS
Allergan CEO Brent Saunders will become president and chief
operating officer of the combined company, with oversight of all
commercial businesses.
Read, who has long sought to slash Pfizer's U.S. tax rate, said the
deal would help put the company on "on a more competitive footing"
with overseas-based rivals.
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The company had estimated it would pay about 25 percent in corporate
taxes this year, compared with about 15 percent for Allergan. Pfizer
Chief Financial Officer Frank D'Amelio said he expected a combined
tax rate of 17 percent to 18 percent by 2017.
The deal comes some 18 months after the failure of Read's initial
attempt at an inversion, a $118 billion bid to acquire Britain-based
AstraZeneca Plc that ran into stiff opposition from that company's
management and UK politicians.
Saunders said the combination would provide access to about 70
additional worldwide markets for Allergan products, such as Botox
wrinkle treatment, Alzheimer's drug Namenda and dry-eye medication
Restasis.
For 166-year-old Pfizer, Allergan would be the fourth huge
acquisition over the last 15 years - one for each of the last 4 CEOs
- following purchases of Warner-Lambert, Pharmacia and Wyeth.
This also caps a record year for healthcare mergers and
acquisitions, taking their cumulative value in 2015 to more than
$600 billion..
They include prior big deals involving Saunders, such as the $70.5
billion acquisition of Allergan by Actavis, which then took the
Allergan name, and an agreement to sell that company's huge
portfolio of generic drugs to Teva Pharmaceutical Industries for
$40.5 billion.
Allergan and Pfizer estimated their merger would increase earnings
per share by 10 percent, excluding special items, in 2019 and add by
a high-teens percentage rate in 2020.
The deal values Allergan shares at $363.63 each, about 16 percent
more than their closing price of $312.46 on Friday. Pfizer
shareholders would control of 56 percent of the combined company.
The record-breaking deal includes $8 billion in debt, Pfizer said.
Pfizer was advised by Guggenheim Securities, Goldman Sachs & Co,
Centerview Partners and Moelis & Co. Its legal advisers are Wachtell,
Lipton, Rosen & Katz; Skadden, Arps, Slate, Meagher & Flom LLP and A
& L Goodbody.
Allergan was advised by J.P. Morgan, Morgan Stanley and Cleary
Gottlieb Steen & Hamilton LLP. Latham & Watkins LLP and Arthur Cox
are its legal advisers.
(Additional reporting by Caroline Humer in New York and and Ankur
Banerjee in Bengaluru; Editing by Lisa Von Ahn and Christian Plumb)
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