Pfizer, the biggest company in the pharmaceutical sector, has announced the acquisition of Allergan. At $160B, this is the largest acquisition in the history of the life sciences industry. With this merger, Pfizer will have over 100 plants and a valuation of over $330B. Yet this is familiar territory for Pfizer with the $17B Hospira acquisition earlier this year and the $68B Wyeth acquisition in 2009. There are a few big drivers for this deal with Allergan, taxes being a primary one and market access for Allergan high growth products another.
With this tax inversion based deal Pfizer will move its headquarters to the Allergan headquarters in Dublin, and the company will reduce its tax rate from 35% to around 17%, saving an estimate $2B/year for the first three years. This deal is not subject to the new US treasury rules on inversion deals as the target company shareholders own greater that 40% of the new entity.
Allergan has been a higher growth company with untapped markets, so Pfizer’s marketing capabilities will enable enhanced growth for this part of the business. Allergan had previously announced the divestiture of its generics business to Teva, thus already shedding its less profitable business.
The remaining interesting thing about this is that Pfizer actually plans to split its business into two separate companies at a later date. One company will remain focused on the high growth brand name products while the other will focus on the mature slow growth products that face generics pressure pricing.
Whenever there is a merger, you can be sure of one thing – operational efficiency will be important in the coming years. Historically after a merger, the company will scrutinize each plant in their integrated network to see if they provide the output needed efficiently. Emerson has solutions and technologies that can help with operational efficiencies including effective energy management, efficient process operations, and the ability to predict a maintenance or process problem before it reduces plant performance.
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