Pfizer Said Near Allergan Deal as U.S. Targets Inversions

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  • U.S. drugmaker may pay as much as $380 per share for Allergan
  • Announcement could be delayed by Treasury inversion plans

Pfizer Said to Be Near Deal for Allergan

Pfizer Inc. is in advanced talks to buy Allergan Plc for as much as $380 per share, according to people familiar with the matter, valuing the Botox maker at as high as $150 billion -- if the U.S. government doesn’t get in the way of the drug industry’s largest-ever deal.

QuickTake Tax Inversion

The companies may announce an agreement as soon as Monday, the people said, asking not to be identified because the discussions are private. The price being discussed is $370 to $380 per share, two of the people said. However, the U.S. Treasury Department’s efforts to crack down on tax inversion deals, announced on Thursday, could delay the final agreement and change the terms of any transaction, another person said.

Pfizer shares dropped 3.1 percent to $32.29 in New York and Allergan fell 2.8 percent to $302.05.

The Treasury’s plans, released after the market closed, aim to reduce the benefits of inversions by limiting the ability of an inverted company to transfer its foreign operations to the new foreign parent without paying U.S. taxes, according to a statement released in Washington. The actions apply to inversions completed on or after Sept. 22, 2014, the department said.

Inversion Structure

The two pharma companies are in talks to structure a deal in such a way that Allergan would be acquiring Pfizer, even though Pfizer would technically be paying a premium for Allergan’s shares, according to one person familiar with the matter. Pfizer and Allergan didn’t come up with that as a result of the Treasury’s initial letter on inversions Wednesday, the person said. Such a structure may make it easier for Pfizer to achieve an inversion through a deal with Allergan.

There have been a flurry of pharma and biotech mergers this year, already surpassing last year’s record of $220 billion in deals, according to data compiled by Bloomberg. Buying Allergan, which has its legal domicile in Dublin, could let New York-based Pfizer relocate outside the U.S. for tax purposes.

Chances of the deal going through hinge on “what price Allergan’s willing to take and also, we don’t know if there’s pressure from the White House in the background," Umer Raffat, an analyst at Evercore ISI, said by phone. The Treasury Department doesn’t have power to block an inversion, but it could reduce the economic benefits of such a deal, he said.

Biggest Deal

At $380 per share, an acquisition would be the largest this year in any industry and would surpass Pfizer’s $116 billion purchase of Warner-Lambert Co. in 2000 as the biggest-ever transaction between drug companies, the data compiled by Bloomberg show. Representatives for Allergan and Pfizer declined to comment.

The transaction would strengthen Pfizer’s brand-name drug business and could pave the way for an eventual split in two. Allergan’s market value of $119 billion could also allow the U.S. drugmaker to transfer its headquarters to Ireland. An inversion requires a large foreign target in order to clear U.S. tax rules, and was one of the reasons Pfizer sought to acquire AstraZeneca Plc last year, before eventually withdrawing its proposal.

The Treasury Department has attempted to deal with inversions before, issuing a notice in September 2014 to make it harder for U.S. companies to borrow against their foreign cash to finance that type of structure. The Treasury notice last year affected a handful of pending deals, but not all of them. 

By September 2014, Burger King Worldwide Inc., Medtronic Inc. and Mylan Inc. were all in the process of inverting -- and all eventually completed those deals. Others fell apart -- AbbVie Inc. dropped a $52 billion purchase of Shire Plc, in what would have been the largest tax inversion to date, blaming the proposed Treasury rules.

Allergan CEO

The Treasury’s guidance could affect deals even if the proposed changes are beyond its authority, Evercore ISI analyst Terry Haines said in a note to clients on Wednesday.  The department “never has to go final with the rules to get what it wants, which is stopping more inversions,” Haines wrote.

Pfizer and Allergan were moving toward a plan to make Allergan’s Brent Saunders chief executive officer of the combined firm, people with knowledge of the matter said on Nov. 11.

The purchase would also keep Pfizer on track if it decides to go forward with a split into two companies, an option that Chief Executive Officer Ian Read has raised as a possibility. One business would focus on older, soon-to-be-generic drugs, while the other would develop and market new brand-name products.

Brand-Name Drugs

Allergan’s portfolio, which includes top-selling brands like the anti-wrinkle injection Botox and the Alzheimer’s drug Namenda, would help beef up Pfizer’s brand-name drug business before splitting it off.

Pfizer earlier this year bought Hospira Inc. in a transaction valued at about $17 billion. The acquisition of Hospira, which makes generic injectable drugs and devices to deliver them, was intended to bolster Pfizer’s established drugs business, which includes off-patent medicine with slow growth and strong cash flow.

Allergan is itself the result of an acquisition earlier this year. It was purchased by Actavis Plc, which took on the Allergan name. Pfizer looked at Actavis as a potential acquisition, people familiar with the matter said last year.

Allergan has more than 70 projects in mid- to late-stage development, according to a Nov. 4 conference call. It has acquired a number of companies as it expands its branded-drugs business after agreeing to sell its generics arm to Israeli rival Teva Pharmaceutical Industries Ltd. for about $40.5 billion. The company has topped earnings estimates for the past eight quarters, positioning it as an attractive addition to Pfizer’s portfolio.

Pfizer has been looking for its next big hit after patents expired for its cholesterol drug Lipitor and arthritis drug Celebrex. The company, which reported $49.6 billion in revenue last year, in September raised its profit forecast for 2015.