Pfizer-Allergan – the rise and fall of a mega-merger

Brauer, Matthias ; Blechschmitt, Florian

URL:	https://www.thecasecentre.org/main/products/view?i...
Document Type:	Report
Year of publication:	2017
The title of a journal, publication series:	CASE
Volume:	317-0080-1
Place of publication:	Beds, UK ; Wellesley, MA
Publishing house:	Case Centre
Publication language:	English
Institution:	Business School > Strategisches u. Internat. Management (Brauer 2014-)
Subject:	330 Economics
Keywords (English):	M&A ; Mergers & acquisitions ; Global strategy ; Completion risk ; Cross-border acquisition ; Deal termination ; Tax inversion deal ; Cross-border M&A ; Mega deals ; International expansion ; Growth ; Headquarters relocation ; Pharmaceutical industry
Abstract:	On November 23, 2015, the US drugs giant Pfizer has entered into a definitive merger agreement under which Pfizer combines with Allergan in an all-stock transaction. The offer price of USD363.63 per Allergan share translates into a 27% pemium for Allergan shareholders and a total enterprise value for Allergan of about USD160 billion. It thus seemed that the pharmaceutical industry was about to see another mega deal to be completed. The capital market response to the deal announcement, however, was negative for both companies. Pfizers stock dropped 2.6% to USD31.33 while Allergans share price fell 3.4% to USD301.03. At those prices, Allergan traded significantly below the offer price. Despite the fact that the deal has the potential to change the competitive landscape of the overall industry, financial analysts explain the negative stock-market response with the deal being ill-timed. The deal, however, not only elicited a negative stock-market response but was also exceptionally ill-received by US politicians. The major reason for the harsh response was the fact that the transaction is associated with a shift of Pfizers headquarters from the US to Ireland. Thus, Pfizer planned a so-called inversion deal aiming at the relocation of headquarters to foreign tax regimes in order to reduce the effective corporate tax rate. On April 04, 2016, the Obama Administration introduced 'new tax rules'. These new tax rules should make it more complex for corporations to virtually move their headquarters out of the US and then shift profits to low-tax regimes. Just two days after new tax rules had been passed, Pfizer and Allergan thus announced that the merger agreement has been terminated by mutual agreement.