Allergan and Pfizer to merge

Deal allows Pfizer locate tax base in Ireland

Neill O’Neill

EXACTLY a year after being bought for $66 billion, it has been announced that Allergan is to be merged with global pharmaceutical giant Pfizer in a record-breaking deal for the pharma industry, and one which values Allergan at around $160 billion.
Allergan, which has a large manufacturing facility in Westport employing roughly 1,000 people, has been the subject of merger discussions with Pfizer in recent months. If the deal goes through as expected, it will create the largest pharmaceutical company in the world, with a market capitalisation of around $321 billion.
The deal will see Allergan come under the Pfizer brand. Pfizer has approximately 3,200 employees at six locations in Ireland across manufacturing, shared services, R&D, financial and commercial operations. Pfizer says it has invested $7 billion in operations in Ireland since opening its first site here in 1969. Commissioning work is near completion on a new €275 million expansion at the Allergan facility in Westport.
In a statement yesterday (Monday), Pfizer said that it expects the transaction will deliver more than $2 billion in operational synergies over the first three years after closing – which many people have interpreted as an indication that they will seek to cut some costs across the new company.
Having been subjected to much restructuring, from corporate level right down through the company, in the lead up to last year’s acquisition by Actavis (which subsequently re-branded as Allergan), staff at Allergan’s Westport facility will have to wait and see what this deal holds for the operation in the town. However, many were focusing on potential positives yesterday, with both companies speaking of plans to launch new products in the near future, to join the likes of well-known products already in their portfolios, such as Botox and Viagra.

Tax incentive
For Pfizer, one of the main motivations for the deal may be that it will enable the company to locate its tax base in Ireland, where Allergan is now headquartered, and make significant savings on its US tax liabilities. This is known as an ‘inversion’ deal.
To overcome potential opposition to Pfizer moving its main executive offices to Ireland after more than 165 years of being based in the US, the deal will be structured as Allergan, which is already based in Ireland, buying Pfizer – the smaller company buying the bigger one.
Pfizer CEO Ian Read said last month, when news first broke that the companies were in talks, that high tax rates in the US meant Pfizer was competing ‘with one hand tied behind our back’.

Deal
Under terms of the deal, the companies will exchange 11.3 Pfizer shares for every Allergan share. The deal also contains a cash component of between $6 billion and $12 billion. After the deal is finalised, former Pfizer shareholders will own about 56 percent of the combined company.
Pfizer and Allergan said the enterprise value of the deal, including debt, is $160 billion. It is expected to close in the second half of 2016.
The board of the new company is expected to have 15 directors – all of Pfizer’s eleven current directors and four current directors of Allergan. Brent Saunders, Allergan’s current CEO, will serve as the 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,” the joint statement read.
Mr Saunders visited the Westport facility for the first time last month.
That statement also said that the completion of the transaction is subject to certain conditions. These include: “Receipt of regulatory approval in certain jurisdictions, including the United States and European Union, the receipt of necessary approvals from both Pfizer and Allergan shareholders, and the completion of Allergan’s pending divestiture of its generics business to Teva Pharmaceuticals Ltd, which Allergan expects will close in the first quarter of 2016.”
Brent Saunders said that the combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that ‘brings together two bio-pharma powerhouses to change lives for the better’.
“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. Joining forces with Pfizer matches our leading products in seven high-growth therapeutic areas and our robust R&D pipeline with Pfizer’s leading innovative and established businesses, vast global footprint and strength in discovery and development research to create a new biopharma leader,” he said.
Pfizer Chairman and Chief Executive Ian Read, added: “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.”

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