Pfizer and Allergan have agreed a deal to enter into the largest ever healthcare merger, worth over $150 billion, with the merged entity to be known as “Pfizergan”. The deal will be the latest in a line of deals known as “inversions”. An inversion occurs whereby a company on paper is bought by a much smaller company, this deal allows the headquarters of the new entity to relocate to a more favourable tax environment. In this case the more favourable tax environment is Ireland with a corporation tax rate of 12.5% as compared with a range from 15% – 39% tax rate in the US. Although on paper Allergan will be acquiring Pfizer, Pfizer’s CEO Ian Read will become the head of the merged entity, a clear sign of the inverted nature of the deal. Allergan itself recently participated in an inversion that allowed it to relocate its headquarters from the US to Ireland, with Allergan having been involved in a merger with Actavis, an Irish drug maker.
The relocation will result in Pfizer avoiding US tax rates on $128 billion of its overseas profits, resulting in a huge saving. However to do this Pfizer is having to buck the current trend in the pharmaceuticals market, currently the focus in the market is to slim down to focus on a smaller number of drugs, rather than being part of a larger corporation, such as Pfizergan which will have a revenue of over $65 billion. Predictions are that the merger will eventually result into Pfizergan splitting into two separate entities, one that focuses on newer branded drugs, and a second that focuses on older medicines. This split will allow the separate entities to increase their competitiveness in specific areas of the market rather than having to worry about competing on a broader scale throughout the market.