US drugmaker Pfizer Inc, the world's second-biggest drugmaker by revenue, has agreed to acquire Dublin-based Allergan Plc, best known for making anti-wrinkle treatment Botox, for $363.63 a share or around $160 billion, in the largest deal in the pharma sector and one of the largest across sectors.
The boards of the two companies have approved a definitive agreement under which the businesses of Pfizer and Allergan will be combined under Allergan plc, which will be renamed ‘Pfizer plc’, the firms said in a joint statement.
Under the terms of the proposed transaction, each Allergan shareholder will receive 11.3 shares of the combined company — Pfizer plc — for each share they hold in Allergan.
Pfizer's shareholders will receive one share of the combined company for every Pfizer share they own. The deal has been valued based on the closing price of Pfizer common stock of $32.18 on November 20, 2015.
The transaction represents more than a 30 per cent premium based on Pfizer’s and Allergan’s unaffected share prices as of October 28, 2015, the statement said.
“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 US, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry,” said Ian Read, chairman and chief executive officer of Pfizer.
It would create a pharmaceutical giant with a combined market value of over $330 billion. The largest acquisition in the pharmaceutical sector thus far is Pfizer's $116 billion acquisition of Warner-Lambert in 2000.
“The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two bio-pharma powerhouses to change lives for the better,” said Allergan plc's CEO and president Brent Saunders.
Read, 62, will be CEO of the combined company. Allergan's Saunders, 45, will have a seat on the combined firm’s board.
The acquisition of Allergan would help Pfizer add Allergen's brand-name medicines for eye conditions, infections and heart disease to its portfolio of vaccines and drugs for cancer, pain, erectile dysfunction and other conditions.
It would also allow Pfizer to surpass Switzerland's Novartis AG and regain the industry's top spot.
The shares of the combined company will be listed on the New York Stock Exchange and trade under the ‘PFE’ ticker. The deal, which is expected to be completed in the second half of next year and is subject to certain conditions, including receipt of regulatory approval in certain jurisdictions, will deliver more than $2 billion in operational synergies over the first three years after closing.
The deal is, however, likely to face close scrutiny given the tax implications. Allergan is based in Ireland, which bestows so-called tax inversion benefits to US companies when they buy a foreign rival to move their legal home to the lower-tax jurisdiction.
US corporate tax rates, among the highest in the world, have forced many American companies to pursue deals that help them reduce tax liability.
Botox maker Allergan is based in Ireland but runs much of its operations out of Parsippany, New Jersey. It has already been involved in two big M&A deals this year. In June, drugmaker Actavis plc completed the $70.5 billion acquisition of Allergan. Actavis then renamed itself Allergan. In July, Allergan agreed to sell its generics business to Israel's Teva Pharmaceutical Industries for $40.5-billion.
Based in New York, Pfizer is a research-based pharmaceutical company. It develops, manufactures and markets prescription products for humans and animals.
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