Comments due Nov. 6, 2015
Pfizer has long played an important role in United States history over its 166 years, including producing painkillers during the Civil War and penicillin in World War II. Yet the company, one of the country’s oldest drug makers, is again looking to renounce its corporate citizenship by buying a foreign rival, raising the prospect of another messy fight with lawmakers in Washington. Both Pfizer and Allergan, which makes Botox and has its tax domicile in Ireland, confirmed on Thursday that they were in friendly talks to combine, a move that would create a pharmaceutical behemoth. With the market value of the smaller Allergan at nearly $120 billion, it would be the biggest merger in a banner year for deal making and the biggest takeover ever in health care. While Pfizer is likely to wring cost savings and other efficiencies from a deal, one of the main advantages to buying Allergan is undoubtedly the chance for Pfizer to lower its own tax rate, which will be about 25 percent this year.
Pfizer’s chief executive, Ian C. Read, has made no secret of his disdain for his company’s tax rate, which he says leaves Pfizer at a competitive disadvantage against foreign rivals. One of the chief ways that Pfizer has looked to reduce its taxes is through what is known as an inversion. In such a transaction, an American company buys a sizable company that has its headquarters abroad. If certain conditions are met, the American buyer can then move its corporate home abroad. Last year, Pfizer sought to buy the British drug maker AstraZeneca, spurring protest from lawmakers and other critics. The takeover effort failed in the face of strong opposition from AstraZeneca and eventually prompted the United States Treasury Department to tighten some of the guidelines that made inversions so attractive to corporations. The regulatory changes led to the scrapping of a number of mergers, including the planned union of the drug makers AbbVie and Shire. But Mr. Read’s interest in pursuing an inversion has not wavered: If he could make one work, he would. “If we believe the value is still there and we believe, under our interpretation of these rules, there is still value, I see no reason why we wouldn’t be able to do an inversion,” he told Bloomberg News last fall. Pfizer, which has a long history of acquisitions, spent $15 billion to buy the biopharmaceutical company Hospira this year. But now it has set its sights on a deal that could finally yield the inversion it has long desired. Though much of Allergan’s operations are in Parsippany, N.J., the company technically has its headquarters in Dublin. Being based there has bestowed tremendous advantages for the smaller drug maker: In contrast to Pfizer’s 26.5 percent tax rate last year, Allergan reported an effective tax rate of just 4.8 percent for the same period. (Its tax rate this year is about 15 percent.)
Allergan itself is the product of numerous mergers. The current version of the company was born of the merger of Allergan and Actavis, which was completed this year, while Actavis itself grew from previous acquisitions like those of Forest Laboratories and Watson Pharmaceuticals. The company’s Dublin headquarters are a product of a $5 billion deal struck by Actavis in 2013 for the Irish drug maker Warner Chilcott. Together, Pfizer and Allergan would have nearly $53 billion in annual sales, with products including Lipitor, Viagra and Botox. Both companies cautioned on Thursday that their talks were at a preliminary stage and could still fall apart. Shares of Allergan surged 6 percent in trading on Thursday, to close at $304.38, while Pfizer’s shares slipped nearly 2 percent, to $34.77. Transferring Pfizer’s corporate home abroad may not be an easy task, financially. New rules that the Treasury Department introduced last fall require a larger target for an inversion to make sense. Allergan’s shareholders would need to own 40 percent of the combined company. That could require creativity in the structure of the deal, given that Pfizer’s $219 billion market value is nearly twice the size of Allergan’s. To achieve that threshold, Pfizer would have to pay at least $340 per share of Allergan in an allstock transaction, according to a research note by Cowen. That would be an 11 percent premium on top of the stock’s closing price on Thursday. A Nomura analyst expected a minimum of $400 a share. The potential inversion has already drawn renewed criticism from Capitol Hill. The size of the deal could encourage legislators to pass reform that limits taxdriven acquisitions, said Senator Jack Reed, Democrat of Rhode Island. “They’re trying to get the best of both worlds: All the benefits of taxpayersupported programs in the U.S., selling to Medicare, the V.A., getting our best scientists through American universities, and being a foreign country for tax purposes,” Mr. Reed said in a phone interview. “That’s not fair.” Other lawmakers said that Congress should fix the tax system that allows inversions. Even Carl C. Icahn, the billionaire activist investor, who is known for taking stakes in public companies and urging management to find ways to extract value, publicly denounced the deal. “Today Pfizer confirmed they are planning to move out of the country,” Mr. Icahn said Thursday via Twitter. “The situation is much more dangerous than most people believe.” In addition to generating a lower tax rate, though, the transaction would help enlarge Pfizer as part of its quest to eventually split into two companies. It has been looking to separate its highergrowth, brandname products from its more mature drugs. A combination of Pfizer and Allergan would make an eventual separation even more likely, said Richard Purkiss, an analyst with Piper Jaffray. Ultimately, the deal could be structured so that Pfizer’s generics business could take the Irish domicile and pay lower taxes on the cash it generates outside the United States, Mr. Purkiss said. Regardless of how the talks with Pfizer go, Allergan said on Thursday that it would continue with its planned $40.5 billion sale of its genericdrugs business to Teva Pharmaceutical Industries. Even if the deal with Allergan falls through, Pfizer’s record for pursuing only deals that benefit the company led Piper Jaffray to reiterate to investors on Thursday that they should buy the stock, Mr. Purkiss said. “The prospect of doing M.&A. has been clearly laid out by the management team at Pfizer over the recent past,” he said in a phone interview. “They won’t do a deal that’s valuedestructive because they have a track record of being relatively prudent.” (NYT 10/30/2015)
15 comments:
I hope Pfizer moving it’s headquarters to Ireland is stopped because it is not fair according to Mr. Reeds. Pfizer will get the best of both worlds in that it will get significantly low tax rates,compared to those of the US, and the research development of the US. Furthermore, this merger between Allergan and Pfizer will allow Pfizer to enlarge so that it can split into two companies. Pfizer will continue to takeover the healthcare industry so that competition will decrease and prices will increase
I think that Pfizer seems like a company who tries to get around things. It is really unfair to get the best of both words. They tried already to have an inversion with AstraZeneca which stirred such controversy and I don't know why they did this with Allergan. They seem like a company who only looks out for deals which benefit them and only them. Capitol Hill should pass reforms that limits deals and mergers like this.
-Morgan Ward
By reading this article it seems as though Pfizer is a very selfish company and only does whats best for them and doesn't care if the deal hurts anyone else, which can be good business but not a good way to keep alliances. If Pfizer mergers with Allergan it will cause only a decrease in competition and an increase in prices.
-Eva Hart
From what I am reading in this article I understand Pfizer is a big company looking out for Itself and is willing to cut corners and expand by merging with Allergan to remove and help get rid of other competition so they can somewhat set up a monopoly in the healthcare area and make prices higher which is understandable because it business. Which my have a good outcome for them but will also have some negatives for them because they are not really looking into the peoples bests interests which is what I would want big business' to do but we can't always have our way but big business corporations always gets what they want for some reason.
-Michael McGuire
This article talks about Pfizer talks to acquire Allergen and thrusting the drug maker into an rancorous debate over corporate taxes.It was stated that it was confirmed that they agreed to combine and would create a pharmaceutical behemoth. It would be the biggest merger and one of the main advantages to buying allergen is the chance for Pfizer to lower its own tax rate. With his disdain for his company's tax rate, would leaves Pfizer at a competitive disadvantage against foreign rivals. Pfizer has looked to reduce its taxes through inversion. In other words, if Pfizer mergers with Allergen it will cause only a decrease in competition and an increase in prices.
- Marchelle Correa
This article talks about how Pfizer wants the best of both worlds. They want the benefit of the taxpayer supported programs in the United States, having the best scientists through American Universities, and being a foreign country for tax purposes. They want to be in another country so that they don't have to pay as much in taxes, but they still want the perks of being in the United States. It's understandable that they are trying to look out for their company and do what's best to help their company prosper and succeed because that's how you get ahead in business. They have to do what's in their best interest, no matter what other people think of it.
-Savanah Catucci
It's understandable that Pfizer is being somewhat selfish by trying to gain all they can in many different aspects. They are trying to gain the perks of lower taxes by being in a foreign country however they wish to remain in the United States as well. The article focuses on Pfizers merging with Allergen and how this would create a pharmaceutical behemoth. There's no doubt that Pfizer would have a huge competitive advantage if this falls through and it would also decrease competition in the field. However, we clearly stated in class- just like the U.S airlines, when there is less competition, the prices will rise. (Not good for consumers)
Pfizer is only worried about their own self interests. Merging with Allergen would allow them to relocate their headquarters to Ireland to avoid paying the high US taxes on big business but still get the R&D from the US. They don't care if their deal hurts anyone else. I thin that the government needs to intervene to prevent this, because if this merger goes though it may cause a ripple effect in the economy.
After reading this article I got the impression that Pfizer is attempting to build a monopoly. They are trying to control on entire market so they can raise prices at their own rate with no consideration for the consumer. Pfizer also plans to take advantage of both American and foreign policies which will ultimately drive any competition out. The only benefactor in this situation is Pfizer, the consumer will feel the damage immediately.
-Vincent Vasheo
I found this article extremely interesting because it explains how Pfizer, a pharmaceutical company, is trying to both gain market share and lower tax rates. Basically becoming a monopoly. Looking at it from a consumer's perspective I find this merger to be unfair. Pfizer is looking to take advantage of a lower tax by simply moving its headquarters to Ireland. At the same time, Pfizer would have more control over drug prices. On the other hand, looking at this merger from Pfizer's perspective I find it to be an extremely smart move. Pfizer has a chance here to gain tremendous market share, lower taxes, and increase its profits. As unfair as it is the mission of any business is to maximize its profits
- Hernan Gallego
This article talks about how Pfizer, being a pharmaceutical company merges with Allergen, and this would allow them to be able to move out of the country for the reason being not to pay US taxes. In my opinion this is very unfair and selfish because, they look to really over power and take advantage of paying less taxes by moving to Ireland. This is not right because they find ways to make easier money, while having more control over drug prices. Something should be done but yet again, "we" the people do not have that authority.
The merging of Pfizer and Allergen would almost create a monopoly. Pfizer is only concerned in what is best for themselves and want to have their HQ abroad for a lower tax rate, but they will also keep their US scientists. I think what they are doing is unfair and there should be a law that prohibits this.
Sabrina Ruggiero
I believe that the merger between Pfizer and Allergan would be a very bad thing for the Pharmaceutical market because it would create a monopoly. This would allow Pfizer to raise prices to almost however much they want. Not only that but they would benefit from not having to pay the U.S. tax rate but also still be able to use the tax supported programs. Even though I do think their tax rate of 25% is a little high right now they shouldn't be allowed to do all of this. The government should fix the law to make it less of a positive to do what they are doing.
-Justin Grossmann
After reading this article, I've learned that Pfizer is a company that solely looks out for themselves. They want to move their company to another country over seas and still follow U.S. Rules. If Pfizer did this they would have more control over the drug prices. Raising drug prices may be good for the company but in the long run their customers won't be happy with it.
- Diamond Melhado
Pfizer is clearly trying to raise its prominence in the market. A merger so large as this one is going to be a huge change in the way the generic drug market is shaped. By moving over to Ireland Pfizer is now enabled to be taxed at a much lower rate, increasing their bottom line and yet still be able to United States regulations. The merger is monopolistic in nature and will prove to be a burden for much smaller pharmaceutical companies. Pfizer will be able to manipulate prices in a way that will be unmatched by anyone else further costing the consumer reducing the consumer surplus. When things change on a scale so large it is important for government to get involved.
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