5 things to know about the Pfizer/Allergan inversion collapse
pharmafile | April 6, 2016 | Feature | Manufacturing and Production, Medical Communications, Research and Development, Sales and Marketing | 5, 5 things, Allergan, Pfizer, collapse, inversion, reasons
The end came very quickly for the Pfizer/Allergan $160 billion deal once the US Treasury Department announced a new set of regulations governing corporate inversions. Many are hailing it a victory for the Obama administration, and this perceived victory over big pharma looking to avoid US taxes comes quite helpfully during an election year. The new set of rules issued by the treasury on Monday led to reports emerging very late Tuesday evening that the two parties had agreed to scupper the deal.
So what do you need to know? These 5 points will get you up to speed:
1. This was a very strong move from the US government
There was much lament in political rhetoric around the time the Pfizer/Allergan deal was announced but it did have a “it’s terrible but what can we do?” tone. This move from the treasury has shown that the Government certainly means business. Treasury secretary, Jacob J. Lew, said: “For years, companies have been taking advantage of a system that allows them to move their tax residences overseas to avoid US taxes without making significant changes in their business operations… Throughout this process, we have said we would continue to explore all our administrative authority to address inversions, including potential guidance on earnings stripping… Today’s action takes away a significant amount of the tax benefits of these serial inversions.”
2. The deal was cancelled very, very quickly after this announcement
Within the space of 36 hours, the reports started to emerge that the merger was off. Following the announcement of the new legislation, they issued a joint statement that evening to say that they were “conducting a review” but refused to “speculate on any potential impact”. Fast forward another day and a Pfizer board meeting signalled the end. With Allergan shares on the slide sharply since Monday, a quick decision to cut losses and move on seems to have mutually beneficial
3. It may earn public support, but it isn’t all positive for the US Government
This kind of deal to keep tax dollars in the country will surely win public favour – it’s been called for by Obama, Trump, Sanders and Clinton throughout the campaign – but these restrictions won’t win them many friends with big business in America. Nancy McLernon, president of the organisation for international investment, issued a statement saying: “The administration’s sweeping proposals will increase the cost of investing and expanding across the United States for all foreign companies and put at risk more than 12 million American workers that are supported by foreign direct investment in the United States. This is a misguided approach that could have a freezing effect on attracting global employers and will damage US competitiveness, which may very be measured in lost jobs, wages and GDP.” This kind of statement certainly won’t be the last to take this stance on the issue.
4. The merger may be over but the pharma debate in the US will rumble on
In an interview with CNBC, Allergan CEO Brent Saunders wasn’t pulling any punches. He said: “For the rules to be changes after the game has started to be played is a bit un-American, but that’s the situation we’re in.” It is tempting to say that if it wasn’t pharma, and if it wasn’t such a massive $160 billion deal, then this legislation may not have come through to stop the inversion. The pharmaceutical industry is delicately poised in US public debates at the moment. With price rises gaining national attention, an opioid epidemic gripping the country, and big pharma trying to engage in tax inversions, pharma will remain high on the agenda for some time to come.
5. Bullish statements lead way to further speculation
Allergan chose to highlight their strong potential going forward in their statement but gave little away about any future steps of note. CEO Brent Saunders said: “While we are disappointed that the Pfizer transaction will no longer move forward, Allergan is poised to deliver strong, sustainable growth built on a set of powerful attributes.”
Pfizer’s statement, however, spoke of plenty options going forward – “We also maintain the financial strength and flexibility to pursue attractive business development…” – but one particular quote from their CEO, Ian Read, certainly caught the eye. He said: “We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016.” All eyes will be on Pfizer, for their latest developments in the coming months.
Sean Murray
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