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 Both New York-based Pfizer and Dublin-based Allergan said no
agreement has been reached and declined to discuss any terms of the
deal, which would potentially set up Pfizer to take advantage of
Ireland's lower tax rates.
Allergan shares rose 6 percent to $304.38 in U.S. trading, while
Pfizer closed off 1.9 percent at $34.77.
Pfizer is already facing political pushback at home that is only
likely to intensify with the U.S. presidential campaign underway, as
candidates take aim at high prescription drug prices and companies
looking to avoid paying U.S. taxes.
A spokesman for Democratic front-runner Hillary Clinton said the
candidate had not seen details of the proposed merger, but is
against tax inversion maneuvers, in which U.S. companies relocate
overseas to take advantage of lower tax rates.
"Clinton is committed to cracking down on so-called 'inversions,'
where a company chooses to leave the U.S. on paper to game the tax
system, and believes we should reform our tax code to encourage
investment in the U.S., rather than shipping earnings and jobs
overseas," Clinton spokesman Ian Sams said.
Democratic U.S. Senator Charles Schumer of New York said in a
statement: "The continued pursuit of inversions, mergers and foreign
acquisitions of major U.S. companies for purely tax purposes shows
there is a lot more work to be done to stop them."
From the right, developer and Republican presidential candidate
Donald Trump said the deal was a reminder that the U.S. tax code
needed an overhaul.
SMOOTHER PATH
"These corporate inversions take capital and, more importantly, jobs
offshore," he said in a statement. "We need leadership in Washington
to get the tax code changed so companies will be coming to America,
not looking for ways to leave."
Billionaire investor Carl Icahn, who has endorsed Trump and launched
a $150 million political action committee advocating tax reform to
eliminate inversions, said a Pfizer-Allergan deal would result in
the loss of the country's 10th largest company to Ireland.
Analysts speculated a deal could be all or primarily done with stock
because under new U.S. rules aimed at curtailing tax inversions,
shareholders of the overseas company must own at least 40 percent of
the combined entity.
Credit Suisse analyst Vamil Divan suggested a price of $390 per
Allergan share, funded by equity and debt. Allergan's U.S.-traded
shares soared as high as $316.80 on Thursday.
Earlier Thursday before the companies confirmed the talks, Pfizer
Chief Executive Officer Ian Read reiterated his criticism of U.S.
corporate taxes.
"Our tax rate highly disadvantages American multinational high-tech
businesses," Read said at a Wall Street Journal event. "I am
fighting with one hand tied behind my back."
Pfizer's effective tax rate is 25 percent, while Allergan's is 15
percent.
Given that both sides characterized the talks as "friendly," Pfizer
is likely to have a much smoother path outside of the United States
after running into intense political opposition in Britain and from
AstraZeneca Plc's board in its failed, unsolicited bid last year.
"It's definitely a far easier target for Pfizer than AstraZeneca,"
said Christophe Eggmann, investment director at GAM, who holds
shares in both companies. "The hurdle will really be the price."
Moody's Investor Service said the deal would have "credit positive
implications for both companies."
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A tax inversion is being discussed in the current talks, a person
familiar with the matter told Reuters. In its pursuit of AstraZeneca,
Pfizer had hoped to employ such a strategy.
Read said Thursday he was open to any moves that produce the best
long-term value for the company and shareholders. He said he was
looking at various growth strategies, including a deal.
Pfizer is expected to decide by late next year whether to sell or
spin off its older, off-patent products unit to pare the business
and focus on innovative, patent-protected medicines.
Allergan, the product of a recent merger with generic drugmaker
Actavis, is selling a large portfolio of generic medicines to Teva
Pharmaceutical Industries Ltd for $40.5 billion.
CASH FROM BOTOX
A purchase of Allergan, with a market value of more than $113
billion, would be the biggest in Pfizer's long history of huge
deals, eclipsing the $90 billion Warner-Lambert acquisition through
which it gained control of Lipitor, once the world's top-selling
medicine.
It would also restore the Viagra maker as the world's largest
pharmaceutical company, worth about $330 billion, a position it
relinquished after Lipitor went off-patent.
Allergan expects revenue of more than $8 billion in the second half
of 2015, not including generic drugs it is selling to Teva.
Pfizer has annual sales of about $48 billion, with about $27 billion
from patent-protected drugs, consumer products and vaccines, and
about $21 billion from the business it is considering selling.
Since the Warner-Lambert purchase, Pfizer has acquired Pharmacia and
Wyeth, each deal under a different CEO.
The deals have led to many thousands of job cuts. It is not known
how many cuts would result from a tie-up with Allergan.
Apart from the tax considerations, the deal would give Pfizer access
to Allergan's wrinkle treatment Botox, with $2.4 billion in annual
sales, and its $1.3 billion Restasis dry eye treatment.
By Sept. 10, deal-making in all sectors of healthcare this year had
reached a record $447.5 billion, according to Thomson Reuters data.
Other large pending tie-ups include pharmacy chain Walgreens Boots
Alliance Inc's planned purchase of smaller rival Rite Aid Corp
announced this week, and pending mergers of health insurers Aetna
Inc with Humana Inc, and Anthem Inc with Cigna Corp.
(Additional reporting by Gregory Roumeliotis and Caroline Humer in
New York, Vidya L Nathan in Bengaluru, Ben Hirschler in London and
Amanda Becker in Littleton, N.H.; Editing by Jeffrey Benkoe and
Christian Plumb)
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