Pfizer and Allergan to merge in $160-billion deal

Successful completion of the transaction would create the world’s biggest drugmaker

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NEW YORK & DUBLIN—Rumors had been swirling since at least the end of October, but it’s official now: American pharma giant Pfizer and Irish powerhouse Allergan plan to merge in a deal valued at about $160 billion.
Looking at the broad picture, the two parties announced Nov. 23 that this deal will create “a new global biopharmaceutical leader with best-in-class innovative and established businesses,” enhance revenue and earnings growth and broaden an innovative pipeline with more than 100 combined mid-to-late stage programs in development and preserve the “opportunity for a potential future separation of innovative and established businesses.”
The transaction is expected to close in the second half of 2016, be neutral to Pfizer’s adjusted diluted earnings per share in 2017, accretive beginning in calendar year 2018 and more than 10-percent accretive in 2019 with high-teens percentage accretion in 2020. The companies expect combined operating cash flow in excess of $25 billion beginning in 2018.
The deal is a stock transaction currently valued at $363.63 per Allergan share, for a total enterprise value of approximately $160 billion, based on the closing price of Pfizer common stock of $32.18 on Nov. 20. The transaction represents more than a 30-percent premium based on Pfizer’s and Allergan’s unaffected share prices as of Oct. 28. Allergan shareholders will receive 11.3 shares of the combined company for each of their Allergan shares, and Pfizer stockholders will receive one share of the combined company for each of their Pfizer shares.
“The proposed combination of Pfizer and Allergan will create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world,” stated Ian Read, chairman and CEO of Pfizer. “Allergan’s businesses align with and enhance Pfizer’s businesses, creating best-in-class, sustainable, innovative and established businesses that are poised for growth. Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients, direct return of capital to shareholders, and continued investment in the United States, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry.”
“The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better,” said Brent Saunders, CEO of Allergan. “This bold action is the next chapter in the successful transformation of Allergan allowing us to operate with greater resources at a much bigger scale. Joining forces with Pfizer matches our leading products in seven high growth therapeutic areas and our robust R&D pipeline with Pfizer’s leading innovative and established businesses, vast global footprint and strength in discovery and development research to create a new biopharma leader.”
Under the terms of the proposed transaction, the businesses of Pfizer and Allergan will be combined under Allergan plc, which will be renamed “Pfizer plc.” The companies expect that shares of the combined company will be listed on the New York Stock Exchange and trade under the “PFE” ticker. Upon the closing of the transaction, the combined company is expected to maintain Allergan’s Irish legal domicile. Pfizer plc will have its global operational headquarters in New York and its principal executive offices in Ireland.
The deal comes shortly after changes to U.S. Department of Treasury rules designed to discourage so-called “inversion deals” that move U.S. companies to other nations for tax benefit reasons. Analysts by and large don’t see the new rules as an impediment to this deal, given how it is structured, but the sheer size of the deal will attract scrutiny by government agencies and completion is by no means a sure thing, even with both boards of directors in agreement.
For more of the ins, outs and implications of this deal, see our December issue of DDNews.

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