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Pfizer-Allergan Deal Would Dwarf Medtronic-Covidien Merger

Medtronic became Ireland's biggest company by spending $50 billion for Irish-domiciled Covidien. The Pfizer-Allergan deal could be three times bigger.

Qmed Staff

Medtronic received unwelcome attention last year from the Obama administration, which tried to crack down on so-called inversion deals just as it was trying to court Dublin-based Covidien. Although the deal ended up being completed earlier this year, it cost Medtronic roughly $7 billion more than its initial estimate of $43 billion.   

Now, Pfizer could pay as much as $156 billion to acquire Allergan, potentially making it one of the largest corporate mergers ever and the largest in the pharmaceutical sector. (Pfizer and Allergan have sizable medical device businesses as well.) Other sources put the potential asking price of Allergan at $120 billion. In late October, the Wall Street Journal reported that the two companies had entered into talks to discuss a merger. Last week, an Allergan spokesperson confirmed that the two companies had "preliminary friendly discussions" about a potential merger.

Although the deal is not certain, it could be structured as an inversion, giving Pfizer Irish-based headquarters and saving the company potentially billions in tax revenue each year, thanks to Ireland's 12.5% tax rate, which is nearly a third of the tax burden of the United States' 35% rate. 

The fact that Allergan is based in Ireland is itself a relatively new development--a shift that happened when Dublin-based Actavis acquired then Irvine, CA-based Allergan for $66 billion.

The Pfizer-Allergan merger would be a big shift for Pfizer, already the biggest pharmaceutical company in the world, potentially giving it a $300-billion valuation.

Pfizer recently boosted the size of its medical device business through the $16 billion acquisition of Hospira--a traditional hospital supply company that transformed itself through acquisitions into the single biggest maker of generic injectable pharmaceuticals. Hospira also has a considerable infusion pump business.

The entire medical industry, from medical device companies to biotech and pharma firms, has entered the busiest period for M&A activity since the Great Recession. In the first six months of this year, there were $164.3 billion on mergers--Nearly 53% higher than the $107.5 billion of M&A activity that occurred in the first  six months of 2014. Outside of the medical device industry, Anthem and Cigna have announced that they are merging, and Walgreens has announced plans to buy Rite Aid.

Learn more about medical technology trends at BIOMEDevice San Jose, December 2-3.
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