Grrrrrrr … Pfizergan

Pfizer hardly does anything by half measures. The announcement of a Pfizer Allergan merger last week, dubbed Pfizergan by industry commentators, at a cost of $US160 billion is at once the largest drug company merger deal in history and the largest US merger by value this year. It created the largest ever pharmaceutical company in […]

Pfizer hardly does anything by half measures. The announcement of a Pfizer Allergan merger last week, dubbed Pfizergan by industry commentators, at a cost of $US160 billion is at once the largest drug company merger deal in history and the largest US merger by value this year. It created the largest ever pharmaceutical company in history and potentially the largest US tax inversion deal in history.
The merged group, if it meets US and European regulatory hurdles, which are expected to take until the second half of next year to clear, will bring together blockbusters from past, present and future including Viagra, Botox, Lipitor, Namenda (an Alzheimer’s treatment) and Restatis for dry eye.
Pfizer Chairman and CEO, Ian Read, told reporters that the combined company would have “the strength to research, discover and deliver more medicines to more people in the world”.
Read thinks he can pursue an agenda to split the company into a research driven business and a generics business. “Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients,” he said.
The tax implications of the deal have caused a brouhaha that has seen US presidential candidates Hillary Clinton, Donald Trump and Bernie Sanders crying foul that Pfizer is taking billions in tax dollars and hundreds of jobs offshore. The merger will see Pfizer reverse takeover Allergan and move its domicile from the US to Ireland, where it will reduce its taxable income by upwards of 5% per annum, which amounts to billions per year.
But putting the heat on Pfizer for leaving for a better tax regime is seen as disingenuous by many commentators, who point out that the US tech giants Google, Apple, Amazon and eBay have been offshore almost from their inception and that Pfizer has at least paid its fair share of tax for its 144 years of local domicile in the US.
When asked about the tax issue last year by Forbes during Pfizer’s attempt at a similar tax inversion deal with UK-based Astra Zeneca, Read essentially said that he had a responsibility to seek to maximise the capital of the company by positioning it in a more competitive tax position.  This was a position that surprised some commentators at the time.
“We have a really serious competitive issue as a US-based pharmaceutical company which is causing a misallocation of capital,” Read told Forbes. “We have between 70% and 90% of our cash outside of the US. We can’t efficiently allocate that capital because of US tax laws compared to our competitors. That particular transaction was in fact a way of accelerating better capital deployment.”