Pfizer said today it will acquire Allergan for approximately $160 billion in the largest-ever merger among drug developers—and the largest-ever tax-slicing “inversion” merger ever announced.
The resulting biopharma giant, to be named Pfizer plc, will combine Pfizer’s products and pipeline in six therapeutic areas—cardiovascular and metabolic diseases, immunology and inflammation, neuroscience and pain, oncology, rare diseases, and vaccines—with Allergan’s specialties that include aesthetics and dermatology, anti-infectives, eye care, gastrointestinal, neuroscience, urology, and women’s health.
Pfizer and Allergan said the combined company will have more than 100 mid-to-late stage programs in development, as well as greater resources to invest long-term in R&D and manufacturing.
Pfizer said it expects to decide on a potential separation of the combined company’s businesses by no later than the end of 2018. The pharma giant added that it expects the merger to generate more than $2 billion in operational cost-cutting or “synergies” over the first three years after closing.
“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,” Ian Read, Pfizer’s chairman and CEO, said in a statement.
Read will hold the same position with the combined company, while Allergan CEO Brent Saunders will serve as president and CEO, overseeing all of Pfizer and Allergan’s combined commercial businesses, manufacturing, and strategy functions.
“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,” Saunders stated. “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.”
Saunders will be one of Allergan’s four current directors to win seats on the 15-member board of the combined company. The other three will include Paul Bisaro, Allergan’s current executive chairman; and two Allergan board members to be named later. All 11 Pfizer board members will round out the board of the new Pfizer plc.
Pfizer and Allergan said their businesses will be combined under Allergan, which will be renamed Pfizer plc, and is expected to maintain Allergan’s Irish legal domicile—a move that will chop the combined company’s corporate tax rate. Pfizer expects the combined firm to have pro forma adjusted effective tax rate of between 17% and 18% by the first full year after the closing of the deal, compared with the pharma giant’s current 25% rate.
The deal is expected to close in the second half of next year, subject to conditions that include regulatory approval in the U.S. and European Union; approvals from both Pfizer and Allergan shareholders; and the completion of Allergan’s pending divestiture of its generics business to Teva Pharmaceuticals, which Allergan said today it expects will close in the first quarter of 2016.
At $363.63 per Allergan share, Pfizer’s acquisition represents a more than 30% premium based on Pfizer’s and Allergan’s share prices as of October 28. Allergan shareholders will receive 11.3 shares of the combined company for each Allergan share they own, while Pfizer stockholders will receive one share of the combined company for each share of Pfizer stock, which closed Friday at $32.18.
Pfizer said the merger is expected to be neutral to its adjusted diluted earnings per share in 2017, will add to EPS starting in 2018, rising in 2019 to 10% and to the high teens in 2020.
Pfizer stockholders can elect to receive cash instead of stock of the combined company for some or all of their Pfizer shares, as long as the aggregate amount of cash to be paid in the merger will be between $6 billion and $12 billion. If the aggregate cash to be paid out is less than $6 billion or greater than $12 billion, then the stock and cash elections will be subject to proration, the companies said.
Assuming that all $12 billion of cash is paid in the merger, Pfizer and Allergan said, it is expected that former Pfizer stockholders will hold approximately 56% of the combined company and Allergan shareholders will own approximately 44% of the combined company on a fully diluted basis.
The combined company is also expected to continue Pfizer’s payout of approximately 50% of adjusted diluted earnings per share as dividends. Pfizer also said it will carry out a roughly $5 billion accelerated share repurchase program in the first half of 2016.
