A Turbulent Transaction?

Pharmaceutical giants Pfizer and Allergan recently announced that they intend to merge in a deal worth around $160 billion– or rather, Allergan is to perform a “reverse takeover” of Pfizer – and it’s one that would form the world’s largest pharmaceutical company. Pfizer and Allergan’s press statement describes the deal as a “highly strategic, value-enhancing transaction that brings together two biopharma powerhouses” and cites various advantages that will result from the combination of both companies’ portfolios (1).

But the reverse takeover has also prompted a significant amount of controversy, with media coverage focusing heavily on the tax implications. Pfizer has traditionally been headquartered in New York, whereas Allergan is located in Ireland. The new combined company has said that Ireland – which has lower taxes than the US – will be its legal domicile. Pfizer was effectively taxed at 25.5 percent in the US in the previous January–December fiscal year, but the takeover could reduce this to 18 percent. The move – termed “tax inversion” – can deliver Pfizer’s shareholders significant value (albeit at the expense of the US federal government’s tax receipts). In a strong statement, Hilary Clinton – a candidate for the US’s 2016 president – has condemned the transaction (describing it as “just offensive”) and if she makes it into office has vowed to end tax inversions (2), but for now there is nothing illegal about the merger. Pfizer’s chief executive officer, Ian Read, has said that the merger would place the company “on a more competitive footing” with its non-US-based rivals (1). Irish politicians and businessmen have also welcomed the news, although concerns have been raised about the possibility of job cuts and what this may mean for Ireland’s workforce.

If the transaction does go ahead, the company will be renamed Pfizer plc. The company’s global operational headquarters will be based in New York but the principal executive offices will be in Ireland.

Michael Kinch gives a different type of view on the Pfizer-Allergan deal here.