An Allergan-Pfizer merger deal is in preliminary talks. Should a deal be made between the two, it would give Pfizer control over the most popular and widely-used medicines. Additionally, it could be the biggest acquisition so far within the industry.
This year has been extremely busy for acquisitions and takeovers. In another sector of the healthcare industry, giant drugstore chain Walgreens is buying Rite Aid in a deal worth $17.2 billion, as reported earlier this week by the Inquisitr .
The potential Allergan-Pfizer merger is just another sign of the rampant consolidation of the healthcare industry as companies try to gain a competitive edge. People close to both companies say the talks are only preliminary at this time and no details are available.
The market capitalization of Allergan is approximately $112.5 billion, so a merger of Pfizer Inc. and the Botox maker would be the largest takeover this year , according to the Wall Street Journal . The combined market value of the two is currently over $330 billion.
Elizabeth Krutoholow from Bloomberg Intelligence says an Allergan-Pfizer merger is a real possibility, as Pfizer has been looking for a deal since the unsuccessful takeover of AstraZeneca last year.
“Pfizer has been on the hunt for assets for awhile after the failed AstraZeneca deal. Allergan is a great target given its growth and offers an inversion.”
The anti-wrinkle treatment Botox, dry-eye treatment Restasis, and many other Allergan drugs would be added to Pfizer’s already large vault of patent-protected medicines should the merger happen. Additionally, Pfizer’s recent $16 billion deal with Hospira Inc. substantially increased its off-patent drugs as well.
By acquiring Allergen, Pfizer could potentially avoid paying higher tax. Allergan is based in Ireland, and it would be an advantage for Pfizer to move its headquarters to Dublin where the corporate tax rate is lower.
Moving their base overseas is a likely step to take if an Allergan-Pfizer deal is struck. Pfizer has commented in the past about its competitive disadvantage with overseas rivals due to a higher U.S. tax rate. Also, as part of last year’s proposed agreement with AstraZeneca, Pfizer had planned to move its headquarters abroad to lower taxes.
For an Allergan-Pfizer deal to happen, there are some obstacles to overcome.
First of all is the cost of the acquisition. Ian Read, Pfizer’s Chief Executive, noticed falling stock prices of competitors and believes investors and company leaders need to reconsider what the companies are actually “worth in a transitional situation.”
Krutoholow believes an Allergan-Pfizer merger is a good move but still not definite.
“Allergan is trading lower than it was this summer before all of the pricing and specialty issues that have caused a general downturn, so it’s a good price but Pfizer needs a good premium to convince Allergan shareholders.”
Allergen would also have some decisions to make. The company’s management team would need to be rearranged and combined with Pfizer’s. Also, a new position for current Allergan CEO Brent Saunders would need to be considered. With a consolidation, Allergen would need to assess the consequences of potential employee layoffs and facility closures.
The U.S. Treasury Department may have a problem with an Allergen-Pfizer merger as well.
In September 2014, when Pfizer was in talks to purchase Actavis PLC, the Treasury Department announced new rules about how companies access foreign cash without paying U.S. taxes. However, this did not deter Pfizer then and is unlikely to sway them this time either.
As patents are expiring for key drugs, such as cholesterol-lowering Lipitor, Pfizer has been looking for companies to buy in order to shore up its product offerings. Adding Allergen will go a long way to do that.
Allergan is familiar with being bought out. Last year, Allergan was purchased by Actavis , which decided to keep the Allergan name. Since Pfizer was not able to complete the previous takeover deal with Actavis, this will be yet another opportunity to finally acquire the company.
In 2000, Pfizer purchased Warner-Lambert Co. in a deal worth $116 billion. Should the Allergan-Pfizer merger happen, it could surpass that deal and become the biggest in the history of the pharmaceutical business.
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