Pharma peer pressure makes tax-friendly M&A targets the new must-have

Talk about peer pressure. First, a couple of U.S. drugmakers pull off trans-Atlantic deals that shift their official HQs and lower their tax rates. Next, some bigger names go for the same tax-inversion strategy. Now, investors want to know why every drugmaker isn't jumping in.

Add to that the threat of U.S. action against this sort of tax-rate engineering--particularly now that AbbVie ($ABBV) and Shire ($SHPG) have agreed on their inversion-minded merger--and what do you get? Powerful impetus for drugmakers to get some deals going already.

So, everyone's making their lists of inversion-friendly targets. Last week, the over-the-counter drugmaker Perrigo ($PRGO)--which recently "moved" to Ireland via an $8.6 billion merger with Elan--reportedly hired financial advisers for a potential sale.

The Swiss pharma Actelion ($ATLN) is also a possibility, Bloomberg notes. Though the tax side of the deal would be more difficult to pull off, according to UBS analyst Guillaume van Renterghem, Actelion has "a lot of upside on sales," and revamping its business development strategy could deliver growth, too.

Actavis ($ACT), the generics maker that just built up its branded business with a Forest Laboratories ($FRX) buyout, moved its domicile to Ireland last year when it bought Warner Chilcott. That could put it in line for a deal--albeit a bigger, more expensive buy than Perrigo or Actelion.

And then there's AbbVie itself when its U.K. domicile is secure, or so Jefferies analyst Jeffrey Holford speculated in a note to investors (as cited by Bloomberg). That would be a megadeal, though, which whittles the list of potential buyers down considerably.

To Big Pharma, essentially, and here's where we find another pressure point. Pfizer ($PFE) may have failed in its run at AstraZeneca ($AZN) earlier this year, but several analysts are betting the U.S. company will make another as soon as it can under U.K. takeover rules. And if Pfizer does that, then the pressure on other U.S. drugmakers--Merck ($MRK), Eli Lilly ($LLY) and Bristol-Myers Squibb ($BMY)--will mount, Credit Suisse analyst Vamil Divan told Bloomberg.

"Everyone's doing it, so everyone has to do it, like any momentum market," ISI Group analyst Mark Schoenebaum told Forbes.

Senator Ron Wyden

Sen. Ron Wyden (D-OR) has said his proposed anti-inversion bill will target May 8--of this year--as the final date for that sort of merger. "The bankers and the lawyers are telling [companies] that, 'Hey, the sooner you announce this thing, the greater the chances are that the deal will go through as you intend,' " tax consultant Robert Willens tells Bloomberg.

So, expect a lot of M&A talk--and behind-the-scenes activity--as AbbVie's deal for Shire progresses, and Pfizer's potential return date nears, and any U.S. legislation advances in Congress.

- get more from Forbes
- see the Bloomberg story

Special Reports: Pharma's top 10 M&A deals of 2013 - Perrigo/Elan - Actavis/Warner Chilcott

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