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Pfizer ($PFE) may be amped about its brand-new agreement to tie up with Allergan ($AGN) and move to tax-advantaged Ireland. But U.S. politicians? They're not so thrilled with the idea.
Presidential candidates on both sides of the aisle came out hard against the deal Monday, slamming the company for its $160 billion pact. Republican hopeful Donald Trump declared the move "disgusting," while Democrat frontrunner Hillary Clinton said in a statement seen by The New York Times that "we cannot delay in cracking down on inversions that erode our tax base."
The way Pfizer sees it, though, it needs the tax break to stay competitive with its Big Pharma peers. With a tax rate that currently sits at about 25%, according to Evercore ISI, the company has been battling its foreign rivals "with one hand tied behind our back," as CEO Ian Read has put it. The Allergan deal will sink that tax rate to about 17% to 18% within a year of its close, Pfizer estimates.
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And the merger is actually good for the U.S., Read contends--despite the loss in tax dollars and a $2 billion cost-cutting target that means layoffs are on the way. He's recently made phone calls to lawmakers and Obama administration officials, the NYT reports, making the case that an Allergan merger will give the drugmaker access to more cash that it can invest in the country. Ultimately, Read sees adding stateside jobs as a result of the deal, too.
That logic didn't stop the U.S. Treasury Department from last week rolling out new rules to tighten the reins on inversions for the second time in about a year. Still, though, the changes "do not seem to materially impact" the Pfizer-Allergan hook-up, Bernstein analyst Tim Anderson wrote in a recent note to clients. And the companies have structured the deal--with the smaller Allergan technically buying Pfizer--in order to shield it from an inversion crackdown.
"We've assessed the legal, regulatory and political landscape and are moving forward with our strategy to combine these two great companies for the benefit of the patients and to bring value to shareholders," Read said on a Monday conference call. "That is our obligation."
- read the NYT story
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