Pfizer and Allergan in Merger Talks

30.10.2015 -

US pharmaceutical giant Pfizer and Ireland-domiciled former US drugmaker Allergan (in its current incarnation a combined Allergan and Actavis) have confirmed they are in “friendly” merger talks.

News of a possible deal was published by the US newspaper Wall Street Journal (WSJ) earlier, which said the impetus came from Pfizer.

In terms of market capitalization, if a merger did take place, it would be the biggest this year –already on track to be the biggest-ever for drug company deals. Together, Pfizer and Allergan are estimated to have a capitalization of around $300 billion, with Pfizer accounting for around two-thirds. Johnson & Johnson of the US, with a market capitalization of $277 billion is currently the world’s largest healthcare company.

One of the most significant features of a Pfizer-Allergan deal that would add anti-aging treatment Botox, dry-eye treatment Restasis and other of Allergan’s popular brands to Pfizer’s large portfolio of patent-protected medicines could be the US market’s biggest drugmaker moving its headquarters to Dublin to lower its tax rate in a so-called tax inversion. Pfizer's effective tax rate, according to the company, is 25%, while Allergan's is 15%.

The WSJ’s sources point out that Pfizer CEO Ian Read in the past has insisted that the company’s comparatively high US tax rate puts it at a competitive disadvantage with overseas rivals. A deal with Allergan would also allow Pfizer to split into branded and a patented units.

Both considerations are said to fit well with the strategy pursued recently by Pfizer. Had its attempt to take over AstraZeneca been successful, the US company was believed to be eyeing a relocation to the UK. Pfizer’s just-completed $16 million acquisition of Hospira was aimed at boosting its off-patent portfolio.

Market talk has it that now is a good time for a merger. Pharma share prices have been sinking since Democratic presidential candidate Hillary Clinton vowed to crack down on sharp drug price increases such as those undertaken by Turing, Valeant and others.