Actavis has agreed to buy Botox-maker Allergan for $66 billion in this year’s biggest pharmaceutical takeover. This deal creates one of the top 10 biggest pharmaceutical companies in the world.
Dublin-based Actavis is the world’s third-largest generics prescription drug company. Allergan is the maker of the Botox anti-wrinkle treatment and the world’s leading manufacturer of breast implants. Combined, the deal will provide predicted revenue in excess of $23 billion for 2015.
Allergan has been involved in a 7-month hostile pursuit by Valeant Pharmaceuticals. California-based Allergan had described Valeant’s offer of $54 billion as “grossly inadequate”. Yet, price was not the only issue. Allergan were concerned about Valeant making significant cuts to its research and development budget in order to finance the takeover. While Valeant undercut Actavis’ planned savings by approximately $1 billion, Allergan opted for Actavis in the interests of its shareholders.
Until recently, Actavis was headquartered in New Jersey. Actavis completed its acquisition of Forest Laboratories earlier this year in a deal totalling $28.4 billion, which enabled it to move its headquarters to Dublin. Actavis’ decision to relocate in order to reduce its tax bill set off a chain reaction of competitors following suit. In September, however, the US Treasury Department declared measures that will make it more difficult for US companies to relocate outside the country in order to reduce taxes. This process is commonly referred to as tax inversion. In October, US drug maker AbbVie Inc. terminated its $54 billion inversion deal with Irish drug-maker Shire PLC, referring to the new Treasury Department tax rules. Actavis is exempt from these rules as it relocated before the announcement of these rules. As a consequence, the firm will be able to pay lower taxes on Allergan’s international sales.
The new company will operate from both California and New Jersey. Its tax rate will be 15% compared with Allergan’s current rate of approximately 26%. Following the announcement, shares of Allergan rose 5.3% to close at $209.20. Actavis gained 1.7%, closing at $247.94.
Actavis Financial Adviser: JP Morgan
Actavis Legal Adviser: Cleary Gottlieb Steen & Hamilton
Allergan Financial Advisers: Goldman Sachs & Co and Bank of America Merrill Lynch
Allergan Legal Advisers: Latham & Watkins, Richards, Layton & Finger and Wachtell Lipton Rosen & Katz.