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Shares of Pfizer (NYSE:PFE) and Allergan (NYSE:AGN) fell in premarket trading this morning following the announcement that Pfizer would merge with Allergan for a record-breaking healthcare price of $160 billion.
I first heard the rumors yesterday that Pfizer might be poised to acquire Dublin-based Allergan. It struck me as a bit odd, because I was fairly certain that Allergan had already been acquired by Actavis. I searched the ADVFN Newspaper and discovered that I had remembered correctly. In fact, I wrote the article “Actavis to Acquire Botox-Maker Allergan” on 17 November 2014, just a year ago. Ironically, just a month earlier most believed that Valeant was going to acquire Allergan.
Surely, the rumors could not be true. But I had forgotten one minor detail. In mid-June this year (2015), Actavis changed its name to Allergan. Go figure. By the way, the $70.5 billion deal was the biggest pharmaceutical acquisition of 2014.
It will probably take a few hours for trading to settle down. For now, less than 30 minutes since the New York markets opened, PFE has dropped 2.83% to 31.28 and Allergan has declined by 3.19% to $302.45 and their is no indication yet that the shares are about to take an upward turn.
I don’t want to use the terms merger and acquisition carelessly, so let me clarify that this is a merger by inversion, meaning that, technically, Allergan will acquire Pfizer with Allergan gaining 11.3 shares of Pfizer for every one of its own shares. The deal will also include a cash component expected to be less than $12 billion. Pfizer shareholders will end up with 56% of the new company. Allergan will assume the Pfizer name as Pfizer plc and the company will move its headquarters to Dublin, which also makes the deal the largest reverse merger of all time.
Combined sales for the two companies will be in the vicinity of $60 billion, making it the world’s largest pharmaceutical company when measured by sales.. With the new company based in Ireland, Pfizer’s tax burden will diminish significantly from 35% to 12.5%, whilst it expects to cut more the $2 billion in costs during its first three years.
Pfizer CEO Ian Read will lead the combined company. Allergan CEO Brent Saunders will become COO. Saunders noted that “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 … allowing us to operate with greater resources at a much bigger scale.”
Once the deal is consummated in the second half of 2016 the company will considered splitting into two divisions. Pfizer had been thinking about separating into separate divisions for innovative and established products. Post merger, such division would likely focus on patented products versus those that no longer have patent-protection or are close to losing it.
Image courtesy of amenic181 at FreeDigitalPhotos.net
