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Pfizer, Allergan Agree USD160bn 'Tax Inversion' Merger

by Mike Godfrey,, Washington

23 November 2015

Pfizer Inc. and Allergan plc on November 23 announced that their boards of directors have unanimously approved, and the companies have entered into, a definitive merger agreement to combine two of the world's largest pharmaceutical companies, in what would be the largest ever "tax inversion" transaction.

Under the terms of the proposed transaction, the businesses of Pfizer and Allergan will be combined under Allergan plc, which will be renamed "Pfizer plc," with an approximate total value of USD160bn. Upon closing the transaction, the combined company is expected to maintain Allergan's Irish legal domicile. Pfizer plc will have its global operational headquarters in New York and its principal executive offices in Ireland. Following the transaction, and assuming that all USD12bn of cash is paid in the merger, it is expected that former Pfizer stockholders will hold approximately 56 percent of the combined company and Allergan shareholders will own approximately 44 percent of the combined company on a fully diluted basis.

Such inversion techniques are being used by some US multinationals to move their tax residences abroad – away from the high 35 percent US headline federal corporate tax rate – and to unlock their unrepatriated earnings held offshore.

Pfizer said it anticipates that the combined company will have a pro forma adjusted effective tax rate of approximately 17 to 18 percent by the first full year after closing the transaction. The completion of the transaction, which is expected in the second half of 2016, is subject to certain conditions, including 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.

Pfizer's US stockholders will recognize a taxable gain, but not a loss, for US federal income tax purposes. The transaction is expected to be tax-free for US federal income tax purposes to Allergan shareholders.

Ian Read, Pfizer's Chairman and Chief Executive Officer, said: "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. Allergan's businesses align with and enhance Pfizer's businesses, creating best-in-class, sustainable, innovative, and established businesses that are poised for growth. Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients, direct return of capital to shareholders, and continued investment in the United States, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry."

For his part, Brent Saunders, the Chief Executive Officer of Allergan, said: "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. 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."

TAGS: tax | investment | business | Ireland | offshore | multinationals | United States | Europe

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