Pfizer has agreed to buy Allergan in a $160bn deal that that will create the world’s largest pharma company – domiciled in Ireland.
The move would allow the US company to reduce its corporate tax rate to 17%-18% – well below its current level of around 25% – and is the biggest case of a ‘tax-inversion‘ deal involving a US corporation. Tax inversion deals involve a corporation re-incorporating overseas in order to shift financial accounting from a high- to low-tax jurisdiction.
The Pfizer/Allergan deal comes despite a pledge from the US Treasury to clamp down on the practice, suggesting federal powers to curtail the activity are limited, and could spark another wave of inversion transactions.
Pfizer chief executive Ian Read said the merger would provide “greater financial flexibility” and also give the group “a more competitive footing within our industry”.
Under the terms of the agreement, Pfizer and Allergan will be combined under Allergan – then renamed Pfizer – with Ireland as the legal domicile. Pfizer’s current headquarters in New York will remain the operational hub for the company with the “principal executive offices” shifting across the Atlantic.
Read will be chairman and CEO of the combined company, while Allergan CEO Brent Saunders will become president and chief operating officer.
US lawmakers have been quick to react with all three Democratic presidential candidate nominees – Hillary Clinton, Bernie Sanders and Martin O’Malley – and Republican nominee Donald Trump – issuing statements to condemn the move.
Clinton insisted that the merger will leave “US taxpayers holding the bag” and called for urgent action in Congress to crack down on tax inversion deals that that “erode our tax base”, while Trump said: “The fact that Pfizer is leaving our country with a tremendous loss of jobs is disgusting.”
Meanwhile, Sanders tweeted that the deal “would be a disaster for Americans who already pay the highest prescription drug prices in the world”, while O’Malley wrote: “As POTUS I will fight mergers that offshore taxes and jobs, while aggressively enforcing our antitrust laws.”
Read – who wrote to senior politicians before announcing the deal – insists that the merger will allow Pfizer to continue to invest strongly in the US, with the combined company expected to generate annual operating cash flow in excess of $25bn beginning in 2018.
The tax debate has overshadowed other elements of the merger, which creates a company with $60bn in annual revenues, $2bn in cost savings in the first three years, and more than 100 mid- to late-stage R&D programmes in the pipeline.
Pfizer also said that long-discussed plans to separate its innovative and established medicine businesses will be shelved while the integration of the two companies takes place, although a decision will be made before the end of 2018.