Irish tax rate seen as key to Viagra/Botox merger deal
Botox maker Allergan and Pfizer are in early stage, friendly talks to create the world's largest drugmaker and potentially set up Pfizer to take advantage of Ireland's 12.5pc tax rate.
A combination with Dublin- based Allergan could allow Pfizer to shift its global tax residency to Ireland to become eligible for the 12.5pc corporate tax rate, rather the 35pc US rate, on global earnings, a strategy called tax inversion. Pfizer's effective tax rate is 25pc, while Allergan's is 15pc.
A tax inversion is being discussed in the current talks, a person familiar with the matter told Reuters.
President Barak Obama has clamped down on inversions, but under US rules a corporation can still claim tax residence here by buying an Irish company, as long as the takeover target is at least 25pc of the buyer's size.
Yesterday, before the companies confirmed they were in talks, Pfizer chief executive officer Ian Read reiterated his criticism of US corporate taxes. "Our tax rate highly disadvantages American multinational high-tech businesses," Mr Read said, speaking at a Wall Street Journal event. "I am fighting with one hand tied behind my back."
Both New York-based Pfizer and Dublin-based Allergan said no agreement has been reached and declined to discuss any terms.
Allergan shares jumped 8pc to $309.97 in US trading, while Viagra-maker Pfizer stock fell 2.4pc at $34.60.
Given that both sides characterised the talks as "friendly", Pfizer is unlikely to face the intense political opposition it got in Britain in response to an earlier bid for AstraZeneca.
But it could face a political backlash at home, particularly during the US presidential campaign as candidates take aim at prescription drug prices and companies looking to avoid paying US taxes by moving abroad. "It will make for good theatre about evil corporate America, but Pfizer is looking out for the interest of shareholders," said Mike Krensavage, principal at Krensavage Asset Management.
A deal would make Pfizer the world's largest drugmaker.