Pfizer-Allergan Merger: Tax Avoidance Mothership

♠ Posted by Emmanuel in , at 11/23/2015 03:48:00 PM
It'd be more appropriate if they depicted two accountants shaking hands.
In trying to be impartial by covering the entire ideological spectrum of IPE, my link list at the bottom includes the Tax Justice Network and Tax Research UK. These folks are frothing at the mouth all the time about persons and corporations (literally, corporate persons) not paying what is due by engaging in all sorts of fiscal tomfoolery. Large multinational corporations are prone to reporting most of their earnings in low-tax locations such as Ireland for obvious reasons. Needless to say, many nation-states are unhappy about their corporations not paying their fair share. Just recently, the US Treasury published guidelines about "tax inversion" to avoid American firms from relocating in the aforesaid low tax locations:
The Treasury Department has unveiled new regulations aimed at reeling in tax-dodging U.S. corporations trying to take advantage of friendly international tax codes. But the guidelines – which were designed to address an issue recognized as problematic by both the right and the left of the political spectrum, from GOP front-runner Donald Trump to President Barack Obama – are merely a bandage over a much deeper problem that will require congressional action to patch up...

It's interesting Obama referenced Ireland specifically, considering U.S.-based Pfizer pharmaceutical corporation is currently in the process of negotiating a merger deal with Dublin-based Allergan. Pfizer last year was sitting on a $74 billion chunk of change that had yet to be funneled back into the U.S. The company has said these earnings "are intended to be indefinitely reinvested overseas," and a deal with Allergan could potentially allow the pharmaceutical giant to avoid its U.S. tax obligations and instead face Dublin's more forgiving 12.5 percent corporate tax rate. If the deal goes through and Pfizer indeed moves its corporate residence overseas, it will become one of the largest companies in history to dodge U.S. taxation via inversion.
Ah yes, Pfizer. Guess what: despite politicians of all stripes including President Obama decrying Pfizer's tax avoidance gambit, its planned mega-merger is going ahead anyway. Just to show you how far this issue has gone in the US public eye, this excerpt is from USA Today:
U.S. pharmaceutical giant Pfizer(PFE) and Irish rival Allergan(AGN) Monday announced a record-breaking $160-billion merger, the largest in health-care industry history and the biggest yet using a controversial tax-saving strategy.

In a transaction expected to create the world's largest drugmaker, the companies said Allergan shareholders would receive 11.3 shares of the newly combined company for each of their existing shares, while Pfizer investors will get one share of the new company for each of their shares. The stock transaction is currently valued at $363.63 per Allergan share, for a total enterprise value of roughly $160 billion based on the $32.18 per share closing price of Pfizer stock on Nov. 20, the companies said.
The rather transparent ploy that they're using is making it appear as though the smaller Allergan is "acquiring" Pfizer, but nobody is being fooled here...not even USA Today:
U.S. pharmaceutical giant Pfizer(PFE) and Irish rival Allergan(AGN) Monday announced a record-breaking $160-billion merger, the largest in health-care industry history and the biggest yet using a controversial tax-saving strategy.In a transaction expected to create the world's largest drugmaker, the companies said Allergan shareholders would receive 11.3 shares of the newly combined company for each of their existing shares, while Pfizer investors will get one share of the new company for each of their shares. The stock transaction is currently valued at $363.63 per Allergan share, for a total enterprise value of roughly $160 billion based on the $32.18 per share closing price of Pfizer stock on Nov. 20, the companies said.

The deal terms call for the companies to combine under Allergan plc, which will be renamed Pfizer plc and trade on the New York Stock Exchange under the PFE ticker. The new combination would retain Allergan's legal and tax domicile in Ireland. Pfizer would have its global operational headquarters in New York and its principal executive offices in Ireland. The agreement is expected to face substantial regulatory scrutiny before its expected closing in the second half of 2016...
However, the new rules are not expected to have any immediate impact on the deal because the transaction is technically structured to have Dublin-based Allergan, with a market cap of roughly $122 billion, acquire New York-headquartered Pfizer, which has a market cap of approximately $200 billion.
Remember that Allergan itself is the result of a previous tax inversion:


Somehow, I doubt whether "When Irish Eyes are Smiling" and "Danny Boy" are playing at the White House or the Treasury Department right now--or at the Tax Justice Network or Tax Research UK [!]. Political scrutiny of this merger Stateside will be massive, and I for one would not bet on it being scuppered as a result. Watch this space.