Allergan and Pfizer have confirmed they have had discussions about combining the two companies, although they insist these are in the very early stages and may not result in a deal.
Ireland-domiciled Allergan was required to reveal the overture from Pfizer under Irish takeover laws, which state that any offer must be disclosed if it results in rumour or speculation and affects the target company’s share price.
In a statement, Allergan said it “will not comment on speculation regarding the terms of a potential transaction,” but said that it was committed to completing the $40bn divestment of its generics business to Teva.
Confirmation of the discussions has heightened debate about how much Pfizer may be prepared to pay to get hold of Allergan and profitable products such as wrinkle treatment Botox.
Nomura said in a research note that Pfizer would have to offer $400 per share in order to overcome the risks associated with a deal, which include political opposition in the US to takeover deals involving overseas corporations that are aimed at side-stepping US corporation tax.
Shares in Allergan – which pays around 15% tax under Irish law compared to the 25% levied on Pfizer in the US – closed at just over $300 yesterday. Meanwhile, Pfizer chief executive Ian Read said this week he would like to fulfil a long-standing pledge to reduce taxes “under the current Congress.”
Allergan is thought likely to be much more open to a deal with Pfizer than former suitor Valeant – now deeply troubled by allegations of shady business practices involving specialty pharmacies – as Pfizer is less likely to slash spending on its R&D pipeline projects.
Furthermore, Allergan’s CEO Brett Saunders is no stranger to large-scale M&A, having already successfully accommodated the merger of Forest Laboratories with Actavis as well as the subsequent acquisition of Allergan.
GSK shares dip
The confirmation of the discussions also coincided with a 1.2% dip in shares of GlaxoSmithKline (GSK), which had been linked to a possible tie-up with Pfizer ever since the US group’s earlier bid for AstraZeneca (AZ) fell through.
Analysts at Jefferies re-iterated the view that a merger with GSK would make more sense for Pfizer as there would be more opportunity to cut costs in addition to saving money on tax.
Meanwhile, a merger with Allergan could also draw antitrust scrutiny, according to Bloomberg, as the two companies have overlapping programmes in biosimilars.