Updated with extra politician comments and tax-inversion data.
Pfizer (NYSE:PFE) said today it will buy Botox maker Allergan (NYSE: AGN) for approximately $160 billion and slash its tax bill in the largest-ever tax inversion to date.
To avoid restrictions, smaller, Dublin-based Allergan is buying Pfizer, though the combined company will still be known as Pfizer and will still be led by Pfizer CEO Ian Read.
CEO Read sent a letter to senior senators yesterday, saying the company “will maintain our global operational headquarters in New York City. At the time we close the transaction, we will have over 40,000 employees across 25 states … We will be gaining greater access to resources that will enable us to make significant investments in the U.S.”
The move has sparked sharp responses in the U.S. political sphere, with Democratic presidential front-runner Hillary Clinton saying the U.S. could not “delay in cracking down on inversions that erode our tax base,” in a press release.
Clinton promised to propose measures to prevent the increasingly common and controversial practice, and called on regulators to take tougher action.
Republican presidential front-runner Donald Trump also commented on the tax-inversion deal, calling it “disgusting” and saying “our politicians should be ashamed.”
Democratic presidential candidate Senator Bernie Sanders joined the fray, saying he called upon the Obama administration to stop the deal, saying it would “allow another major American corporation to hide its profits overseas.”
“The Pfizer-Allergan merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs,” Sanders said in a statement.
In July, President Barack Obama called such inversion deals “unpatriotic”, arguing that the move is “gaming the system.”
The White House declined to comment on the deal in specific, but spokesman Josh Earnest said today the Treasury Department has tried to discourage the moves with administrative actions, and the White House urged Congress to take legislative action to prevent such deals.
There have been more than 50 similar deals over the last 30 years, such as Medtronic‘s (NYSE:MDT) $50 billion tax-inversion purchase of Covidien, which closed in January.
Also involved in big-ticket tax inversion deals are Fruit of the Loom and Ingersoll-Rand. According to congressional researchers, if left unchecked such inversions will cost the U.S. Treasury nearly $20 billion over the next 10 years.
Despite the outrage, its unlikely the tax issue will see an overhaul before the 2016 elections.
“Pfizer built their business on the back of our research and development tax incentives, our federally supported medical research, our skilled workforce, and our infrastructure. We cannot continue to allow Pfizer and other corporations to pretend that they are American while reaping the benefits this country has to offer, yet claiming to be another nationality when the tax bill comes,” Democratic Representative Rosa DeLauro said in a statement.
Allergan shares drooped approximately 3% in mid-day trading Monday, trading at $303.04 as of 3:01 p.m. EST, as investors learned the merger would bring lower cost-savings than hoped for.
Pfizer estimated its tax rate at 25% for this year, compared to 15% for Allergan. Pfizer CFO Frank D’Amelio said he expects a combined tax rate of 17 or 18% by 2017.
Read attempted a previous $118 inversion with Britain-based AstraZeneca, but failed as it ran into stiff opposition from the company’s management and U.K. politicians.
The deal puts Allergan shares at $363.63 each, and will put Pfizer shareholders in control of 56% of the combined company Allergan share holders will receive approximately 11.3 shares in the combined company for each share they hold.
Material from Reuters was used in this report.
