(Bloomberg) — Pfizer Inc. (NYSE:PFE) and Allergan PLC (Nasdaq:AGN) agreed to combine in a record $160 billion deal, creating a drugmaking behemoth called Pfizer PLC with products from Viagra to Botox and a low-cost tax base.
Pfizer will exchange 11.3 shares for each Allergan share, valuing the smaller drugmaker at $363.63 a share, according to a statement Monday. That’s a premium of about 27 percent above Allergan’s stock price on Oct. 28, before news of the companies’ discussions became public. Pfizer investors will be able to opt for cash instead of stock in the combined company in exchange for their shares, with as much as $12 billion to be paid out.
The transaction is structured so that Dublin-based Allergan is technically buying its much larger partner, a move that makes it easier for the company to locate its tax address in Ireland for tax purposes, though the drugmaker’s operational headquarters will be in New York. Pfizer Chief Executive Officer Ian Read will be chairman and CEO of the new company, with Allergan CEO Brent Saunders as president and chief operating officer, overseeing sales, manufacturing and strategy.
The deal will begin adding to Pfizer’s adjusted earnings starting in 2018 and will boost profit by 10 percent the following year, the companies said. Pfizer’s 11 board members will join four from Allergan, including Saunders and Executive Chairman Paul Bisaro.
Pfizer dropped 2.1 percent to $31.51 at 9:34 a.m. in New York, while Allergan fell 2 percent to $306.17. The combined company will trade on the New York Stock Exchange.
Pfizer said it will start a $5 billion accelerated share buyback program in the first half of 2016. The deal is expected to be completed by the end of next year.
Pfizer, based in New York, makes medications including Viagra, pain drug Lyrica and the Prevnar pneumococcal vaccine, and Allergan produces Botox and the Alzheimer’s drug Namenda. Together, barring any divestitures, the companies will be the biggest pharmaceutical company by annual sales, with about $60 billion.
The deal will be unprecedented on many levels. It’s the largest acquisition so far this year. It’s the largest ever in the pharmaceutical world, eclipsing Pfizer’s purchase of Warner-Lambert Co. in 2000 for $116 billion. And if the new company is able to establish itself abroad for a lower tax rate, a controversial process called an inversion, it will be the largest such move in history.
The U.S. Treasury Department has increasingly targeted such strategies, most recently announcing new guidance on how it will value assets owned by U.S. companies that undertake inversions. The U.S. has the highest tax rate for businesses in the world, at 35 percent, and is one of the only countries to tax corporate profits wherever they are earned. Previous moves by the U.S. Treasury have derailed other proposed inversions, including AbbVie Inc.’s plan to buy Ireland’s Shire PLC for an estimated $52 billion. Pfizer and Allergan’s deal appears structured to avoid the tax inversion rules.
Read has already reached out to lawmakers in both houses of Congress, including Senate Majority Leader Mitch McConnell, and is calling the White House Monday, according to a person with knowledge of the matter. His pitch is that that the deal will help the companies invest in more innovative drugs and that Pfizer PLC would have 40,000 U.S. employees at the close of the transaction.