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 The U.S. drug maker walked away from a $160 billion merger with
Allergan Inc <AGN.N> on Wednesday because of new U.S. Treasury rules
aimed at blocking the deal's tax benefits, marking the second major
setback for Read in the past two years.
In 2014, Pfizer failed in its unsolicited $118 billion bid to buy
London-based drugmaker AstraZeneca Plc <AZN.L> after that deal ran
into staunch opposition from British politicians.
This time it was the U.S. government that threw up roadblocks to
prevent Pfizer from relocating to Ireland, where former U.S. company
Allergan is now based, with rules that appeared to be aimed
specifically at Pfizer/Allergan.
While failure on that scale often puts CEOs in jeopardy, 10
investors and portfolio managers told Reuters that Read still has
their support. Read, they said, has a deep reservoir of goodwill
after tackling many problems he inherited since taking over in 2010,
including re-energizing Pfizer's faltering research and development
operations. In addition, many of them blame the U.S. government, not
Read, for the Allergan deal's demise.
"Read gets an 'A' for effort. It was the right move for him to give
Allergan a shot," said Gary Bradshaw, a portfolio manager for the
Hodges Funds in Dallas.
OTHER OPTIONS
With annual sales of about $50 billion, Pfizer has other options,
including spinning off its large branded generics business. Pfizer
had pushed back that decision by two years in announcing the
Allergan deal, but said it will now make that call by the end of
this year.
Pfizer shares rose 5 percent on Wednesday after the deal was
scrapped.
Read is also likely to make other acquisitions to shore up its
patent-protected drugs unit before shedding its generics business.
Shares of several biotechs seen as possible acquisition targets for
Pfizer and Allergan rose on Wednesday, after the deal was called
off.
Read announced the Allergan deal last November just days after the
U.S. Treasury laid out a previous set of restrictions on so-called
tax inversions aimed avoiding U.S. taxes. The deal was structured to
avoid those restrictions, but included an unusually small breakup
fee should further new tax rules end up scuttling the deal. This
week, the U.S. Treasury announced a newer set of restrictions, which
is what ended up killing the Allergan merger.
Pfizer had to pay only $150 million, billions less than a standard
breakup fee. That took some of the sting out of the deal's collapse
for some shareholders.
Read, a trained accountant, has enjoyed strong support from the
Pfizer board after restocking the company's portfolio of medicines
in development and overseeing several important drug approvals.
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But it now appears his legacy will not include slashing the
company's tax bill, a passion for Read who has said U.S. corporate
taxes left him disadvantaged when competing with overseas rivals.
Pfizer declined requests for comment from Read.
NOT THE 'FALL GUY'
Many of the investors Reuters spoke with said the U.S. government
was responsible for the Allergan deal's collapse, giving Read a
pass.
Oliver Marti, portfolio manager at Columbus Circle Investors, which
has been a Pfizer investor, said Read "has made some very smart
decisions" and the deal to buy Botox maker Allergan was one of them.
"You work within the rules as best you can to win the game.
Unfortunately, the Treasury has abused its authority and made up its
own rules," Marti said.
"Read shouldn't be the fall guy," agreed Tony Scherrer, director of
research at Smead Capital Management, a longtime holder of Pfizer
shares.
The Treasury and many U.S. politicians, including presidential
candidates, have argued that U.S. companies should not be allowed to
strike deals to avoid paying taxes.
Allergan CEO Brent Saunders said in a telephone interview on
Wednesday that the companies each had contingency plans in place if
Treasury changed the rules again. "While I'm sure Ian is personally
disappointed, he hasn't skipped a beat and is absolutely focused on
Pfizer and its independent future."
Asked if there was anything he could do to cheer up Read after his
quest for lower taxes evaporated, Saunders said: "His stock price is
up. He doesn't need cheering."
(Additional reporting by Caroline Humer in New York; Editing by Eric
Effron and Matthew Lewis)
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