Pfizer confirms $160bn reverse takeover of Allergan
Pfizer and Allergan have confirmed that they will merge in a $160 billion deal, with Ireland-domiciled Allergan acquiring the US pharma giant, and re-naming itself Pfizer.
The deal is the biggest ever seen in the pharma sector, and also makes it a record-breaking year for the whole sector, which has now seen acquisitions worth over $600 billion agreed.
The companies have raced to seal the deal because the Obama administration had sought to close down the loopholes allowing such ‘tax inversion’ deals, where US companies move their tax base overseas to avoid billions in taxes.
If and when approved by shareholders and regulators, the combined company will retain Pfizer’s global operational headquarters in New York but have its tax base in Dublin.
Having agreed the terms of the deal, US officials look unlikely to block the deal outright, though efforts will undoubtedly be made to ensure it is the last of its kind, given the potential tax loss revenues in the US.
For pharma, the deal shows the determination of Ian Read and Brent Saunders, the respective chief executives of Pfizer and Allergan, to cut the best deal for shareholders. But the mega-merger may well damage the image of the industry further – capping off a year beset with controversies over price (Turing Pharma) and allegations of market manipulation (Valeant).
Pfizer has a long history of growth through aggressive deal-making twinned with strength in marketing and R&D. Allergan, meanwhile, has been one of the sector’s most frenzied deal-makers, having agreed its acquisition by generics firm Actavis for $70 billion barely a year ago.
Brent Saunders has been criticised for his scepticism towards investing in R&D, but he will now take on the second-in-command position at Pfizer, with Ian Read retaining the leadership role.
In a typically bullish statement, Read has proclaimed that the deal represents a new model for the sector – ‘growth pharma’.
“The proposed combination of Pfizer and Allergan will create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world,” stated Ian Read.
He said the new company would create “best-in-class, sustainable, innovative and established businesses that are poised for growth”.
Reid was careful to stress that the firm would continue to invest in discovery and development, as well as in the US, but also pledged to pursue further business development opportunities “on a more competitive footing within our industry”.
Pfizer says the deal will allow it to execute some of the spin offs of divisions it has been promising shareholders for some time. It says it will make a decision on separating the firm’s innovative research-led division from its off-patent and biosimilars unit – which will be increased significantly via Allergan’s portfolio – by no later than the end of 2018.
“The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better,” said Brent Saunders. “This bold action is the next chapter in the successful transformation of Allergan allowing us to operate with greater resources at a much bigger scale.”
Allergan is best known for its blockbuster product Botox, which spans numerous cosmetic and medical uses, and also has a significant presence in eye care and gastrointestinal medicine
Pfizer said the merger would give it a pipeline of more than 100 mid-to-late-stage programmes in development, and greater resources to invest in R&D and manufacturing. It aspires to be a ‘leader in growth’, something which it has lost in recent years since the expiry of its cholesterol blockbuster Lipitor in 2011.
The company stated that the deal would deliver more than $2 billion in operational synergies over the first three years after closing. It expects to have a combined adjusted effective tax rate of approximately 17-18 per cent by the first full year after the deal is finalised, which is expected in the second half of 2016.
However it must first receive regulatory approval in the US, Europe and other markets. Allergan is also in the process of selling its generics business to Teva, which is expected to be concluded in the first three months of 2016.
Pfizer’s new board is expected to have 15 directors, consisting of all of Pfizer’s 11 current directors and four current directors of Allergan. The directors from Allergan will be Paul Bisaro, Allergan’s current executive chairman, Brent Saunders, and two other directors from Allergan to be selected at a later date. Ian Read will serve as chairman and CEO of the combined company. Brent Saunders will serve as president and Chief Operating Officer of the combined company. He will be responsible for the oversight of all Pfizer and Allergan’s combined commercial businesses, manufacturing and strategy functions.
Saunders is understood to have demanded the CEO role in the new, merged company, but has had to settle for leader-in-waiting status, ceding the top role to 62-year-old Read, at least for the time being.
One thing is for sure, this new Pfizer-Allergan hybrid, led by two aggressive dealmakers in Read and Saunders, will influence the wider pharma industry over the next few years, drawing more companies into M&A and shaping corporate strategies. However the growing public displeasure with the pharma industry in the US, particularly in relation to prices and deal-making, may well also be stoked by the mega-merger, creating new dangers of punitive measures for pharma, especially from Democrat politicians such as Hilary Clinton, as the US approaches presidential elections on 8 November 2016.