Pfizer: World's new giant drugs firm to be Irish for tax savings
Pfizer & Tax: Pfizer, the US drugs giant, which is one of the world's biggest pharmaceutical firms, is to become Irish for tax purposes and will be Ireland's biggest company — dwarfing the value of Irish companies such as CRH and Ryanair. Ireland's national accounts will be further distorted by companies that are mainly run from the US but hold board meetings in Dublin.
Earlier this month we analysed the impact of Pfizer using what is known as a "tax inversion" in the US to become Irish for tax purposes:
Pfizer Inc. and Allergan PLC — another American healthcare company, that is already Irish for tax purposes — on Sunday agreed on a merger deal worth more than $150bn that would create the world’s biggest drug maker and result in transferring a company that was founded in New York City in 1849, to a foreign country.
The Wall Street Journal reports that the boards of each company ratified the deal Sunday and it could be announced Monday, according to people familiar with the matter. The final terms include 11.3 Pfizer shares for every Allergan share and the deal also contains a small cash component, they said.
The Journal says that the takeover would be the largest so-called inversion ever. Such deals enable a US company to move abroad and take advantage of a lower corporate tax rate elsewhere, and have remained popular in the face of US efforts to curb them.
To help secure that lower tax rate, the deal will be technically structured as a reverse merger, with Dublin-based Allergan, which is smaller, buying New York-based Pfizer, according to the people.
Last year, Actavis, already domiciled in Ireland, bought Allergan — best known as a maker of Botox, which has over 1,000 employed in County Mayo, Western Ireland — and took its name. It had more than $13bn in sales in 2014, while Pfizer had nearly $50bn in revenue.
The Journal reported earlier this month that Allergan's effective tax rate on third quarter adjusted earnings was just 8.2%. Allergan has now averaged an effective rate of 13% in the trailing four quarters. Pfizer, by contrast, has averaged a rate of just under 25% over that period — however, the actual rate paid is likely to have been lower.
Last week, the US Treasury Department and the Internal Revenue Service announced new rules meant to further clamp down on the benefits of such mergers. The US government has already lost billions of dollars in corporate tax revenue from inversions but action by Congress is needed to address the corporate tax situation that was last subject to a significant overhaul in 1986.
Pfizer is known for drugs such as Lipitor and Viagra, and it employs approximately 3,200 people in six sites in Ireland across manufacturing, shared services, R&D, treasury and commercial operations. Pfizer has invested $7bn in operations in Ireland since opening the first site in 1969.
Pfizer had a global payroll of 78,000 at end 2014 and Allergan had about 30,000 in June 2015.
According to Reuters, Pfizer already arranges what are artificial losses in the United States.
Pfizer does have manufacturing plants in the United States but filings for its overseas units show non-US companies supply over 80% of US sales.
Those sales generate margins of around 40% for Pfizer's overseas arm — earning it over $17bn in 2013. However, Pfizer has reported losses on its US business in each of the past five years.
According to a presentation given by one of its staff last year, a unit in Dublin has a cash mountain approaching $50bn — however, most of that would likely be in a US bank.
Pic on top: Pfizer's 200-acre Ringaskiddy site, by Cork Harbour, in Southern Ireland.
The Wall Street Journal reported late Monday in New York that the earlier announced $155bn agreement to combine Pfizer with Allergan would create a drug behemoth so big that Pfizer is already thinking of breaking it up.
The deal brings together a diverse stable of drugs, from Pfizer’s cancer medicines and vaccines, to Allergan’s skin-care treatments and eye drugs.
The companies expect to achieve $2bn in cost savings as well as significant tax benefits from the deal, under which Pfizer’s tax base would shift to Allergan’s home base in Ireland in a so-called inversion. As a result of the move, Pfizer expects to cut its tax rate to 17% or 18%, from its roughly 25% rate currently, because corporate taxes in Ireland are lower than in the US.
Behind Pfizer’s takeover of Allergan | FT's Lex