Nation/World

Pfizer to merge with Allergan in $160 billion deal

The pharmaceutical giant Pfizer said Monday that it had struck a $160 billion deal, including debt, to merge with Allergan, the maker of Botox, in one of the biggest takeovers in the health care industry.

The agreement would also be the biggest deal in what has been a banner year for mergers, driven in part by consolidation in the health care and pharmaceutical sectors. Merger and acquisition activity worldwide surpassed $4 trillion as of Thursday, for only the second time since Thomson Reuters began keeping records in 1980.

The deal is the latest — and the largest — to be aimed at helping a U.S. company lower its taxes by reincorporating overseas, a practice known as a corporate inversion.

President Barack Obama has called inversions "unpatriotic." His administration has tried to crack down on the strategy this year, with the Treasury Department and the Internal Revenue Service announcing additional rules last week meant to further restrict the practice. The U.S. government has already lost billions of dollars in tax revenue from inversions, particularly in recent years.

Rules introduced last year have deterred some companies from pursuing inversions, including the drugmaker AbbVie calling off a planned $54 billion takeover of Shire, an Irish counterpart.

The transaction would be structured as a so-called reverse merger, in which Allergan, the smaller of the two companies, would technically be the buyer.

Allergan has its headquarters in Dublin — even though the bulk of its operations are based in Parsippany, New Jersey — allowing the planned transaction to avoid the Treasury rules.

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But Pfizer is expected to lead the combined company, which would have more than $63 billion in combined sales and a product portfolio that includes Viagra, Celebrex, Botox and the cosmetic treatment Juvéderm. It would have about 110,000 employees worldwide.

Under the terms of the all-share deal, Pfizer would essentially pay $363.63 for each Allergan share, representing a more than 30 percent premium to Allergan's share price in late October before news emerged that they were in talks.

"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," Ian Read, the Pfizer chief executive, said in a news release Monday.

Read would be chief executive of the combined company, while Brent Saunders, the Allergan chief executive, would serve as president and chief operating officer. Saunders would also have a seat on the combined company's board of directors.

The combined company's board would consist of 15 directors, with Pfizer's 11 current directors and four from Allergan.

The transaction, which requires shareholder and regulatory approval, is expected to close in the second half of 2016 but could face stiff opposition from U.S. lawmakers.

Under the terms of the deal, Allergan shareholders would receive 11.3 shares of Pfizer for each share of Allergan they hold. Pfizer shareholders would receive one share in the combined company for each share they hold, but they have the option to take up to $12 billion in cash for some or all of their shares instead.

After the transaction, Pfizer shareholders are expected to own about 56 percent of the combined company, with the remaining 44 percent owned by Allergan shareholders.

"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," Saunders said.

The combined company would be named Pfizer and be domiciled in Ireland. Its global operating headquarters would be in New York, and its principal executive offices would be in Ireland.

The transaction is contingent in part on the completion of Allergan's pending divestiture of its generics business to Teva Pharmaceuticals, which is expected to be completed in the first quarter.

The companies said that they expected to achieve more than $2 billion in annual cost savings over the first three years after the deal closes.

The Allergan deal came after Pfizer, one of the oldest U.S. drugmakers, tried unsuccessfully last year to shift its home base abroad.

The company sought a $119 billion takeover of AstraZeneca of Britain, but it abandoned its pursuit after AstraZeneca repeatedly rejected its approaches and the campaign drew the ire of U.S. and British lawmakers.

By acquiring Allergan, Pfizer would not only save on its overall tax rate, but it would also be better able to use earnings from its international operations for additional acquisitions or other activities.

Under current rules, Pfizer must pay U.S. corporate taxes on the billions of dollars in earnings from international operations if it ever tries to bring the money back to the United States, restricting its ability to use that money for certain corporate functions. (The company kept $74 billion in earnings offshore last year to avoid that bill.)

Last year, Pfizer's tax rate was about 26.5 percent, and it is expected to be about 25 percent this year. By comparison, Allergan reported a tax rate of just 4.8 percent for 2014 and is expected to have a tax rate this year of about 15 percent.

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Pfizer said that it expected the combined company's adjusted tax rate to be between 17 percent and 18 percent by the first year after the deal is finalized.

The deal comes among a flurry of consolidation in the pharmaceutical industry in recent years, as companies look to gain scale to give them better pricing power and to acquire drugs in development in hopes of locating the next blockbuster treatment.

Pfizer, based in New York, has engaged in several large deals in recent years, buying Wyeth in a $68 billion deal nearly seven years ago and acquiring Hospira, a maker of generic treatments, for about $17 billion this year.

Allergan was created through several mergers since 2012 that included the drugmakers Forest Laboratories, Actavis and Warner Chilcott.

The deal could be a precursor to Pfizer's eventually being split in two.

Pfizer has discussed whether to become two companies, one dedicated to higher-growth, brand-name treatments and one focused on slower-growing mature drugs that face pressure from generic counterparts.

On Monday, it said it would make a decision on the potential separation by the end of 2018.

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