Pfizer, Allergan to Merge in $160B Transaction

Pfizer and Allergan have entered into a definitive merger agreement under which Allergan will acquire Pfizer in a stock transaction valued at approximately $160 billion. Pfizer and Allergan’s businesses will be combined under Allergan plc, which will be renamed Pfizer plc. Although Allergan is buying Pfizer, Pfizer will retain control of the company. Former Pfizer stockholders will hold approximately 56% of the combined company and Allergan shareholders will own approximately 44%.
 
The combined company is expected to maintain Allergan’s headquarters in Ireland creating a huge tax incentive for Pfizer. The U.S. corporate tax rate is 35%, while Ireland’s is just 12.5%. The transaction is expected to be tax-free for U.S. federal income tax purposes to Allergan shareholders, and is expected to close 2H16, subject to customary closing conditions, and Allergan’s pending divestiture of its generics business to Teva Pharmaceuticals Ltd., expected 1Q16. Pfizer plc’s global operational headquarters will be in New York and its principal executive offices in Ireland.
 
Pfizer’s innovative business gains Allergan’s flagship brands (namely Botox) in therapeutic areas such as Aesthetics and Dermatology, Eye Care, Gastrointestinal, Neuroscience and Urology. The companies will have combined pipeline of more than 100 mid-to-late stage programs in development and greater resources to invest in R&D and manufacturing, which is expected to sustain the growth of the innovative business over the long term.  
 
The combination will significantly increase the scale of Pfizer’s established business, along with complementary capabilities for the combined established portfolios. Pfizer also expands the reach of Allergan’s established portfolio using its existing commercial capabilities, infrastructure and global scale. Additionally, Allergan brings topical formulation, manufacturing and its Anda distribution capabilities.
 
As a result of the deal, Pfizer expects to make a decision about a potential separation of the combined company’s innovative and established businesses no later than the end of 2018.
 
Pfizer anticipates the transaction will deliver more than $2 billion in operational synergies over the first three years after the closing. The combined company is expected to generate annual operating cash flow in excess of $25 billion beginning in 2018.
 
Pfizer plc’s board is expected to have 15 directors, consisting of all of Pfizer’s 11 current directors and four current directors of Allergan, including Paul Bisaro, Allergan’s current executive chairman, Brent Saunders, chief executive officer, and two other directors from Allergan. Pfizer’s Ian Read, chairman and chief executive officer, will serve as chairman and chief executive officer of the combined company. Brent Saunders will serve as president and chief operating officer, responsible for the oversight of all Pfizer and Allergan’s combined commercial businesses, manufacturing and strategy functions.
 
“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,” said Ian Read, chairman and chief executive officer, 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, chief executive officer, 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.”
 
Guggenheim Securities, Goldman, Sachs & Co., Centerview Partners and Moelis & Company are serving as Pfizer’s financial, with Wachtell, Lipton, Rosen & Katz, Skadden, Arps, Slate, Meagher & Flom LLP and A & L Goodbody acting as its legal advisors.
 
J.P. Morgan and Morgan Stanley are serving as Allergan’s financial advisors with Cleary Gottlieb Steen & Hamilton LLP, Latham & Watkins LLP and Arthur Cox acting as its legal advisors.