BUS 420: Criteria Ratings Pts, Pfizer and Allergan

Pfizer and Allergan Deal
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Introduction
Pfizer Inc. (American-based company) and Allergen PLC (Ireland-based company) obtained their top management approval to merge the two companies in what will the biggest ever inversion deal, worth an estimate of $160 billion. That deal is a reverse merger in which Allergan (the smaller company) will acquire Pfizer (the larger company) so that Pfizer can take advantage of reduced tax regime in Ireland (Micklus and Muntner, 2016, p.78). Pfizer will shift its domicile out of the United States to Ireland. The merger is expected to reap a big valuation. Pfizer shareholders will obtain one share in the new combined firm for everyone they are holding currently, whereas Allergen shareholders will obtain 11.3 shares for every Allergen share. That would give Pfizer shareholders an efficient 56% stake in the merged company, and Allergan shareholders 45%.
Many stakeholders think that the pending deal between Allergan and Pfizer is positive. Nevertheless, the argument against the plan is that such deal is negative because the risks are more than the perceived benefits. In this paper, I will present the perceived importance of the merger by illustrating arguments for the deal. On the other side, I will show arguments against the merger plan. After going through critical analysis, I realize that the merger deal has more harmful impacts than perceived benefits. I am, therefore, against the Pfizer-Allergan merger because it is against the good of the national interest. Lastly, recommendations and conclusion are derived from the critical analysis.
Critical Analysis
I have approached the assessment of the merger between the Pfizer and Allergan in two ways. First, arguments for the merger are examined to understand its perceived importance. Secondly, the arguments against the deal are assessed to comprehend the risk exposure of the plan. After understanding both perspectives of the arguments, relevant recommendations and conclusion are derived.
Arguments for the Deal
Pfizer Chief Executive argues that reducing the tax is not simply the idea behind the deal, but the merger aims to give the firm more financial flexibility to make investments in manufacturing, development, and research. The chief executive officer claims that the merger of Allergan (manufacturer of anti-wrinkle treatment Botox) and Pfizer (manufacturer of cholesterol medicine Lipitor and Viagra) will develop the product portfolio of two firms. Mullard (2016) opines that Pfizer Company will add to Allergan’s developing brand portfolio in therapeutic aspects in neuroscience, eye care, and urology (p.14). Pfizer’s top managers argue that working with Pfizer matches Allergan’s leading products in the seven high-growth therapeutic areas. Allergan’s robust Research and Development matches Pfizer’s leading established and innovative businesses. The managers contend that huge international footprint and strength in development and discovery research would enable the combined company to become a new biopharma leader.
The merger deal of the two firms is expected to establish a leading international pharmaceutical firm with the strength to deliver, discover, and research more therapies and medicines to more consumers across the world (Tadi, 2016). The combined company will improve Pfizer’s Research and Development capabilities with superior access to capital and will develop its pipeline to create additional programs of the development (Mullard, 2016, p.15). Through the merger, Pfizer will get greater financial flexibility which will facilitate its continued development and discovery of new innovative drugs for patients, better financial return shareholders, and continue making investments in the United States. On the other hand, the merger will enable Allergan to pursue its business development opportunities on a better competitive footing in the pharmaceutical industry.
In recent years, US companies use inversions because foreign nations have been lowering their tax rates to attract corporate headquarters. Therefore, the chief executive of Pfizer defended the merger saying that the company’s decision to shift its headquarters to a lower-tax country (Ireland) will be good for the United States. Cartwright, Datta, Khera, and Mahawar (2016) say that the deal with Allergan will significantly reduce Pfizer’s tax bill and will enable Pfizer to generate more cash which it could invest in the U.S and consequently create more jobs (p.5). The two firms and their advisers are betting that the Congress will fail to reform the tax code prior the merger deal is expected to close this year and that the Treasury Department will not create new rules to block the merger. Pfizer’s chief executive has announced it publicly that his key priority is to satisfy the needs of its shareholders, and that means obtaining a better approach to competing with large foreign rivals which enjoy much more reduced tax rates (De la Merced, Gelles, and Picker, 2015). Pfizer’s managers argue that they have assessed the political, regulatory, and legal landscape and are moving on with their strategy to merge the two firms for the benefits of the patients and to create value for shareholders. Pfizer has been talking openly about its intentions. Even after the company’s takeover plan for AstraZeneca failed, the Pfizer chief executive made it public his interest to try gain. He has been criticizing the tax code which he viewed leaving his firm fighting to win with one hand tied at its back.
Typically, companies always are looking for ways to maximize shareholders’ returns, and they will take advantage of any opportunity that allows them to generate more revenues. The companies can be blamed, but the tax code is to blame. Pfizer Company is taxed at about 26% of US corporate tax. Cartwright, Datta, Khera, and Mahawar (2016) present that the merger deal will help Pfizer to reduce corporate tax rate to18% when the firm moves its headquarters to Dublin (Ireland) where Allergan Company is based (p.4). The combined firm will also be in a position to save more than $2 billion in costs as a result of business operations within the next three years. The deal will establish the world’s largest pharmaceutical company, with combined annual sales of about $64 billion and an estimate of 110, 000 employees.
Besides the sales growth, from 2018 onwards Pfizer’s earnings will increase, and the combined operating cash flow of the merged company will be more than $25 billion on 2018.
The merger of Pfizer and Allergen will be a highly value-enhancing strategic business which will unite the two biopharma powerhouses to transform lives of the patients for the better (Tadi, 2016). While companies participating in corporate inversion typically argue that the approach makes their business logistics more effective, it also helps to reduce corporate tax bills. Mullard (2016) says that if successful, then the deal between Allergan and Pfizer will become the largest-ever inversion. Pfizer’s top managers cited that the merger will lower the company’s taxes which they said has put the company in a disadvantage situation against foreign rivals.
The chief executives of both Pfizer and Allergan argued that the merger is not being done simply to reduce Pfizer’s tax bill. They claim that the merger will give Pfizer access to rapid growing treatments in the Allergan’s dermatology and eye care space and brands such as cosmetic treatment and Botox including others. De la Merced, Gelles, and Picker (2015) view that the deal will give Pfizer an adequate size and product diversity to focus on a rapidly growing innovative medicines and mature treatments to encounter competition from big competitors. Furthermore, buying Allergan will enable Pfizer’s portfolio to develop more rapid growing treatments. That will develop Pfizer’s $17 billion acquisition of the Hospira Company (drug manufacturer) to bulk up its treatments division (Cartwright, Datta, Khera, and Mahawar, 2016, p.5). The chief executive complaints that Pfizer’s tax rate is 26% compared to 5% of Allergan’s tax rate. Larger international rivals such as AstraZeneca, GlaxoSmithKline, and Novartis also pay substantial fewer taxes, which enable them to win takeover contests with significantly higher bids than Pfizer.
Arguments Against
In the past since the AstraZeneca bid, the U.S government created new rules, which have made it difficult for firms to do inversion transactions, thus ruining efforts by firms such as AbbVie (a big medicine manufacturer in Illinois) to relocate overseas (Lam, 2015). From the start of the Pfizer-Allergan merger talks about three months ago, Allergan and Pfizer reached that the best approach is to go without an inversion altogether. Instead, Allergan will be the buyer despite a being a smaller company in the deal. Although, the new rules of US Treasury department have made the inversion tricks somehow more difficult in the past, Miller (2015) discloses that the Allergan-Pfizer merger is technically structured as an overseas acquisition to avoid such regulations. At present, the merger deal is waiting for the antitrust clearance, and by the second half of this year, it is expected to close. The deal will result in the loss of the largest US pharmaceutical company, including loss of thousands of jobs. The deal has attracted many reactions from lawmakers and industry regulators.
It is unfortunate that the deal has elicited political uproar because it has political implications and also has faced significant resistance from US industry regulators. The Treasury Department has distasted the merger deal which aims to move Pfizer’s tax away from home. Hilary Clinton has condemned such inversion deals claiming that they take advantage of loopholes in the tax code (Young, 2015). Moreover, Senator Bernie Sander argued that the Obama administration has the powers to block such deals, and the gov...