Pfizer-Allergan megadeal combines Botox and Viagra

published 26 November 2015

US drug giant Pfizer is to buy Ireland-based Allergan for $168bn, setting a new record for a merger in the pharmaceuticals industry. The combined entity will have sales of around $64bn, a market value of $320bn and 110,000 employees. The deal is set to be the second-biggest in corporate history after Vodafone's $180bn takeover of Mannesmann in 2000.

What the commentators said

These two look well matched, said The Daily Telegraph's Julia Bradshaw. Pfizer, which makes Viagra, will get a boost from Allergan's fast-growing skin and eye treatments, the most prominent of which is Botox. The companies' "more mature, established" generic and branded portfolios also look "largely complementary". But this isn't about "big pharm sex appeal", as Alistair Osborne put it in The Times, despite a drug combo that one would expect to find "at Hugh Hefner's playboy pad". Instead, "tax appeal" is what interests Pfizer CEO Ian Read as you'd expect from someone who joined Pfizer as an auditor in 1978.

Allergan is based in Ireland, and this deal allows the new company to be domiciled in Ireland, slashing Pfizer's tax rate from 26% to 18%. Pfizer is set to avoid US taxes on $128bn of overseas profits. This "tax inversion" deal will also allow Pfizer to return overseas cash to shareholders.

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US politicians won't take this lying down, said Nils Pratley in The Guardian. The government has already attempted a clampdown on tax inversion deals by US firms, and will not be impressed by the transparent attempt to get round the new rules by structuring the deal as a takeover by Allergan. What's more, Pfizer has "prospered for decades" from the high US prices for prescription drugs, an issue Hillary Clinton has taken up.

Perhaps the likely political battles to come explain why Read buried the detail of the tax inversion deal in the eighth paragraph of the merger announcement rather than shouting it "from the rooftops". Political controversy would, however, certainly be a reason why Pfizer's share price "hasn't even managed a cosmetic improvement" since the deal was announced.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.