Pfizer, Allergan Merge to Create World’s Largest Drug Maker

Yet another American company is reincorporating overseas to save tax money.

Photograph by Shutterstock

Photograph by Shutterstock

Pfizer and Allergan have struck a $160 billion merger deal that would create the world’s largest drug maker. It’s yet another example of a merger in the ever-consolidating health care sector and a deal that allows an American company to reincorporate overseas to save tax dollars.

The deal is sure to shake up the pharmaceutical industry — and have Philly-area companies watching closely. Pfizer has research operation in Collegeville, Pa. but is based in New York. Allergan is based in Ireland. The deal is expected to close in the second half of 2016.

Reuters says the deal is “sure to draw political ire in a U.S. presidential election year because Pfizer would redomicile to Ireland, where Allergan is registered, in a so-called ‘inversion’ that would slash its corporate tax rate.”

But the U.S. Dept. of Treasury recently issued new tax rules to curb such inversion deals and close a big tax loophole. Heck, president Barack Obama called the deals unpatriotic. But Fortune argues that those rules won’t matter in the Pfizer-Allergan deal. Basically, it’s a “super inversion” that’s too big. Fortune explains that the Treasury’s inversion rules “relate to deals in which U.S. companies end up owning between 60 percent to 80 percent of the newly formed company.” If the terms of the deal are correct, Pfizer will own 57 percent and Allergan will own 43 percent, meaning it won’t hit the 60 percent threshold. (Now that’s how you work a tax loophole!)

But the Wall Street Journal argues that the deal is about plenty more than taxes.

“Buying Allergan’s portfolio of branded medicines, such as Botox, would fit neatly into Pfizer’s long-contemplated split of the company. Pfizer has said it would decide whether to break up into two business units by the fourth quarter of 2016,” the WSJ said.

Meanwhile Reuters tells us more about the popular drugs that are part of the deal: “Widely used Pfizer drugs such as Lipitor, Viagra and nerve pain treatment Lyrica would be brought together with Allergan’s Namenda memory loss treatment, Restasis dry eye medication and other leading eye-care brands.”

Pfizer CEO Ian Read will be CEO of the combined company, with Allergan’s CEO Brett Saunders “serving in a very senior role focused on operations and the integration,” Reuters reports.

One company that is certainly watching very closely is Merck & Co., which has its corporate headquarters in Kenilworth, N.J. in Union County. The combined company would have annual sales of more than $60 billion, “putting the merged group well ahead of No. 2 U.S. drugmaker Merck & Co, which has annual sales of about $40 billion,” Reuters reports.

And it’s one of the biggest mergers in history “surpassing Anheuser-Busch InBev NV’s $108 billion recent agreement to buy SABMiller PLC and top off a blockbuster year for deal making,” the WSJ reported.