PHARMA GIANTS PFIZER and Allergan have agreed to merge in a $160 billion (€150 billion) deal that will create the world’s biggest drug manufacturer.
The tie-up will be structured as a reverse merger – or so-called ‘inversion’ – which involves the smaller, Dublin-headquartered Allergan taking over Pfizer. The combined company will then, slightly confusingly, be renamed Pfizer PLC.
Inversions have long been attacked by US politicians as a tax dodge and this deal has already been criticised by Hillary Clinton among others.
The New York-based company’s official tax base will be moved from the US to Ireland, allowing it to take advantage of the Republic’s famous 12.5% corporate tax rate – rather than the top nominal rate of 35% in its home country.
In a statement today, the two companies said: “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.”
Both companies already have significant operations in Ireland with Pfizer, which makes drugs like Viagra and Lipitor, employing about 3,200 people at six sites.
Earlier this year it backtracked on a decision to close its Lipitor plant in Little Island, Cork, securing the immediate future of about 130 workers.
Botox maker Allergan was itself the product of a merger a year ago in a $66 billion agreement with another US-based firm, Actavis. The combined company has an estimated 3,500 staff across the Republic.
Pfizer said it expected the deal to deliver more than $2 billion (€1.8 billion) in spending cuts over the first three years. The merger is expected to close in the second half of next year if it is cleared by competition regulators in the US and EU.
The combined company would have yearly sales worth over $60 billion (€56 billion), easily topping those of its nearest rival.
A big inversion
The Pfizer-Allegan deal will be the third-largest merger in corporate history and the biggest-ever inversion, a setup which involves a merger with a company domiciled in a low-tax jurisdiction.
The arrangements allow the firms to maintain the bulk of their profits outside the US, despite in most cases keeping their operational bases and management in their home country.
US lawmakers have introduced measures to try and crack down on the profit-shifting measures, including penalties for executives of the companies involved in the deals.
However the moves haven’t stopped the outward flow of business. Last year med-tech company Medtronic bought out Dublin-headquartered Covidien in a $42.9 billion deal, one of a series of similar mergers closed in recent years.
This latest deal already been criticised by Democratic presidential candidates Hillary Clinton and Bernie Sanders.
Clinton said it would leave “US taxpayers holding the bag”, while Sanders said it would be a “disaster” for Americans already paying high prescription-drug costs.
Asked if the deal was designed to avoid taxes, Pfizer CEO Ian Read said only that company executives’ obligation was to shareholders and patients.
Senator Charles Schumer, a member of the Senate Finance Committee, called Pfizer’s move “truly disturbing” given how the company had benefited from federally funded research and infrastructure.
‘Not pushing inversion’
Speaking in Brussels earlier today, the Minister for Finance Michael Noonan said both Pfizer and Allergan have “substantial interests” in Ireland. He said the inversion was obviously for tax advantages.
“We are not pushing for inversion, the IDA never pushes for inversion. It is a decision for the two companies.
“Our interest would be that there are no job losses, but that there are more jobs created.”
The merger is subject to approval from regulators in the US European Union and elsewhere. It also needs the go-ahead from shareholders of both companies.
First published 10.24am Additional reporting Christina Finn, Rónán Duffy and Associated Press