Pfizer and Allergan agree to $160 billion "inversion"

Kimberly Adams Nov 23, 2015
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Pfizer and Allergan agree to $160 billion "inversion"

Kimberly Adams Nov 23, 2015
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Pfizer announced Monday morning the company would merge with Allergan, PLC in what’s called a “corporate inversion”. The Obama administration issued new rules last week in an attempt to stop these kinds of mergers, in which companies move overseas to take advantage of lower tax rates.

Law Professor John Coffee is director of Columbia University’s Center on Corporate Governance. He says the new rules, “may have some chilling effect, but the incentives are just too strong” for companies to give up on inversions altogether. 

In the case of the Pfizer-Allergan deal, the smaller company, Allergan, will technically “buy” the larger Pfizer. This will allow Pfizer to take advantage of the tax rate in Ireland, where Allergan is based. That could mean paying an effective tax rate of 15 percent instead of 25 percent.

In addition to lower taxes, Coffee says there’s another reason the companies want to push this deal through now.

“Low interest rates,” said Coffee. “Everyone expects that the federal reserve is going to start moving up interest rates, probably as early as next month, and that sort of creates a last minute panic to try to get your deal done at lower interest rates”

Idalene Kesner, dean of the Kelley School of Business at Indiana University, says this deal would pool the research and development dollars of the two companies, which could lead to more innovation.

“But I also think it will give the company some degree of strength in the marketplace,” she added, “especially given what’s going on with Obamacare and other kinds of health-related changes.” The giant company such a deal would create, if approved by regulators, could push for tougher bargains on drug prices when negotiating with health care plans or governments. 

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