Ex-Allergan CEO Says Pfizer Deal All About Tax (And That's OK)

  • `That’s the motive that you can see on the part of Ian Read'
  • David Pyott speaks in interview about Pfizer bid for Allergan

Pfizer Inc.’s plan to buy Allergan Plc is all about escaping U.S. tax rules -- and that’s just as it should be, said the former chief executive officer of Allergan’s corporate predecessor.

Pfizer is in talks with Ireland-based Allergan Plc about what would be the drug industry’s biggest-ever acquisition, a deal that would shift Pfizer’s legal address out of the U.S. to a lower-tax jurisdiction. Known as a tax inversion, it would give New York-based Pfizer access to profits trapped overseas and cut the company’s U.S. tax bill by billions of dollars.

“When you go through the inversion rules, which to me is what’s driving the whole thing, there are only a few companies left,” said David Pyott, the former CEO of Allergan Inc. “That’s the motive that you can see on the part of Ian Read,” he said, referring to Pfizer’s CEO.

Allergan was sold last year to what was then Actavis Plc for about $64 billion. Actavis then took Allergan’s name. Pyott spoke in an interview with Bloomberg and said he had no knowledge of the negotiations between Allergan and Pfizer. Once one of Allergan’s largest shareholders, after the deal he left the drugmaker and sold his stake.

Joan Campion, a Pfizer spokeswoman, declined to comment, and referred to an Oct. 29 statement that said there’s no certainty a deal with Allergan will be reached. Mark Marmur, an Allergan spokesman, declined to comment.

Other Attempts

Pfizer attempted to buy London-based AstraZeneca Plc last year for more than $100 billion in a deal that also would have moved Pfizer’s address abroad. Those talks fell apart. There were also reports that Pfizer considered a purchase of GlaxoSmithKline Plc, another U.K. drugmaker.

Without the tax advantages, a Pfizer-Allergan deal doesn’t make much sense, Pyott said.

“There isn’t a lot of industrial logic in terms of overlap of product lines,” he said. “You can’t say there is a great opportunity to put two businesses together that that will create an innovative and more complete portfolio of products.”

Allergan was sold to Actavis after being pursued by Valeant Pharmaceuticals International Inc., a partner that Pyott strongly opposed. And in July of last year, he testified before a U.S. Senate committee that it was “inevitable” that Allergan would be bought by a foreign-domiciled acquirer.

“The reality is that the U.S. tax code, with its high corporate rate and outlier worldwide system of taxation, puts American companies like Allergan at a tremendous disadvantage,” he said.

Tax Controversy

Tax inversions have been criticized by U.S. lawmakers and presidential candidates. Last year the Treasury Department issue a proposal intended to discourage the moves, which typically only a change a company’s legal address while the operating headquarters stays in the U.S. Allergan, for example, is run from New Jersey and has a Dublin tax address.

Without tax reform, however, CEOs like Read have little choice but to move and escape the 35 percent U.S. corporate tax rate -- the highest in the developed world. American companies also have to pay taxes on profits from around the world, rather than just where the revenues are generated, if they want to bring those funds back home for use.

“I don’t criticize the executives,” Pyott said. “Read is a public-company CEO, creating shareholder value.” Pyott said tax reform is essential, or companies will continue to flee. “Tax reform has to occur. Otherwise there are going to be no great American corporations left.”

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