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Pfizer and Allergan In Advanced Talks Over Merger

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Merger

The pharmaceutical companies could announce a deal as early as Monday, according to industry insiders.

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November 20, 2015 | by Sarah Massey, M.Sc.

It’s reported that Pfizer and Allergan are in advanced talks over their proposed megamerger – and Pfizer could pay as much as $380 per share to acquire the Ireland-based drug developer. Pfizer may value Allergan as high as $150 billion – an evaluation that is conditional on the US government not stepping in to put a stop to the largest pharmaceutical industry deal ever.

The pharmaceutical companies could announce a deal as early as Monday, according to industry insiders. While the sale price is being negotiated between $370 and $380 per share, Wednesday’s release of the US Treasury Department’s letter on tax inversion may put a wrench in the merger.

Following release of the letter, shares of Pfizer sank by 1.5 percent to $32.80 and Allergan shares decreased by 1.4 percent to $306.37. The Treasury’s letter released details on the government’s intention to issue guidance on overseas acquisitions later this week.

According to data compiled by Bloomberg, the value of pharmaceutical and biotech mergers performed this year have already exceeded last year’s record of $220 billion. If Pfizer is successful in its buyout of Allergan, the US-based company could relocate overseas to save on taxes.

“We struggle to see what the Treasury can do to specifically curb [a merger]”, said Citigroup Inc. analysts. The “political noise” that would encompass the relocation of the pharmaceutical giant “constitutes the most material hurdle to consummation of a transaction of this nature.”



According to Umer Raffat, an analyst at Evercore ISI, the deal comes down to “what price Allergan’s willing to take and also, we don’t know if there’s pressure from the White House in the background.” He went on to say that while the Treasury Department cannot prevent an inversion from happening, they could reduce the tax incentives of such a deal.

Along with the obvious tax advantages of the proposed merger, Pfizer would receive a boost for their brand-name business – if the deal goes through. As Allergan’s market value is $122 billion, Pfizer could move its headquarters to Ireland in order to take advantage of a lower tax rate.

The US Treasury Department has tried to dissuade companies from participating in inversions before, but companies like Burger King Worldwide Inc., Mectronic Inc. and Mylan Inc. have all successfully completed the inversion process. According to Evercore ISI analyst Terry Haines, the Treasury Department “never has to go final with the rules to get what it wants, which is stopping more inversions.”

Allergan reportedly has over 70 projects in middle and late-stage development – an attractive quality not lost on Pfizer. With the company’s blockbuster cholesterol drug - Lipitor - and arthritis medication - Celebrex - going off-patent, Pfizer is looking for the next big thing in prescription drugs.

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Keywords:  Pfizer, Allergan, Merger


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