Submitted by Tyler Durden on 11/23/2015 07:02 -0500
As was extensively reported over the weekend, the Pfizer-Allergan tax-inverting, reverse-merger (in which the far smaller Allergan would end up "buying" Pfizer, courtesy of fungible debt which doesn't care where it ends up as long as there are cash flows) would be announced this morning, and sure enough, moments ago the long-awaited press release finally hit.
Here are the details:
Pfizer and Allergan to Combine
- Creates a new global biopharmaceutical leader with best-in-class innovative and established businesses
- Enhances revenue and earnings growth profile of innovative and established businesses
- Broadens innovative pipeline with more than 100 combined mid-to-late stage programs in development
- Transaction expected to close in the second half of 2016
- Expected to be neutral to Pfizer’s Adjusted Diluted EPS in 2017, accretive beginning in calendar year 2018 and more than 10% accretive in 2019 with high-teens percentage accretion in 20202
- Expect combined Operating Cash Flow in excess of $25 Billion beginning in 2018
- Increased financial flexibility facilitates continued investment in the United States
- Preserves opportunity for a potential future separation of innovative and established businesses
And the full press release:
Pfizer Inc. (PFE) and Allergan plc (AGN) today announced that their boards of directors have unanimously approved, and the companies have entered into, a definitive merger agreement under which Pfizer, a global innovative biopharmaceutical company, will combine with Allergan, a global pharmaceutical company and a leader in a new industry model – Growth Pharma, in a stock transaction currently valued at $363.63 per Allergan share, for a total enterprise value of approximately $160 billion, based on the closing price of Pfizer common stock of $32.18 on November 20, 2015. The transaction represents more than a 30 percent premium based on Pfizer’s and Allergan’s unaffected share prices as of October 28, 2015. Allergan shareholders will receive 11.3 shares of the combined company for each of their Allergan shares, and Pfizer stockholders will receive one share of the combined company for each of their Pfizer shares.
“The proposed combination of Pfizer and Allergan will create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world,” stated Ian Read, Chairman and Chief Executive Officer, Pfizer. “Allergan’s businesses align with and enhance Pfizer’s businesses, creating best-in-class, sustainable, innovative and established businesses that are poised for growth. Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients, direct return of capital to shareholders, and continued investment in the United States, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry.”
“The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better,” said Brent Saunders, Chief Executive Officer, Allergan. “This bold action is the next chapter in the successful transformation of Allergan allowing us to operate with greater resources at a much bigger scale. Joining forces with Pfizer matches our leading products in seven high growth therapeutic areas and our robust R&D pipeline with Pfizer’s leading innovative and established businesses, vast global footprint and strength in discovery and development research to create a new biopharma leader.”
Under the terms of the proposed transaction, the businesses of Pfizer and Allergan will be combined under Allergan plc, which will be renamed “Pfizer plc.” The companies expect that shares of the combined company will be listed on the New York Stock Exchange and trade under the “PFE” ticker. Upon the closing of the transaction, the combined company is expected to maintain Allergan’s Irish legal domicile. Pfizer plc will have its global operational headquarters in New York and its principal executive offices in Ireland.
Pfizer’s innovative businesses will be significantly enhanced by the addition of a growing revenue stream from Allergan’s durable and innovative flagship brands in desirable therapeutic areas such as Aesthetics and Dermatology, Eye Care, Gastrointestinal, Neuroscience and Urology. The combined company will benefit from a broader innovative portfolio of leading medicines in key categories and a platform for sustainable growth with diversified payer groups. With the addition of Allergan, Pfizer will enhance its R&D capabilities in both new molecular entities and product line extensions. A combined pipeline of more than 100 mid-to-late stage programs in development and greater resources to invest in R&D and manufacturing is expected to sustain the growth of the innovative business over the long term. Through product approvals, launches and inline performance the combined company aspires to be a leader in growth.
The combination of Pfizer and Allergan will significantly increase the scale of Pfizer’s established business, and their complementary capabilities will maximize the combined established portfolio. The addition of Allergan’s Women’s Health and Anti-Infectives portfolio will add depth to Pfizer’s established business, and Pfizer will expand the reach of Allergan’s established portfolio using its existing commercial capabilities, infrastructure and global scale. In addition, Allergan brings topical formulation, manufacturing and its Anda distribution capabilities to the combined company.
As a result of the combination with Allergan and subsequent integration of the two companies, Pfizer now expects to make a decision about a potential separation of the combined company’s innovative and established businesses by no later than the end of 2018.
Pfizer anticipates the transaction will deliver more than $2 billion in operational synergies over the first three years after closing. Pfizer anticipates that the combined company will have a pro forma Adjusted Effective Tax Rate1 of approximately 17%-18% by the first full year after the closing of the transaction. The transaction is expected to be neutral to Pfizer’s Adjusted Diluted EPS1 in 2017, modestly accretive beginning in calendar year 2018, more than 10% accretive in 2019 with high-teens percentage accretion in 2020. These expectations include the impact of expected share repurchases following the transaction. The combined company is expected to generate annual operating cash flow in excess of $25 billion beginning in 2018.
The transaction is not expected to have an impact on Pfizer’s existing dividend level on a per share basis. It is expected that the combined company will use its combined cash flow to continue to support an attractive dividend policy, targeting a payout ratio of approximately 50% of Adjusted Diluted EPS.1
Independent of the transaction and consistent with 2015, Pfizer anticipates executing an approximately $5 billion accelerated share repurchase program in the first half of 2016. Pfizer has approximately $5.4 billion remaining under its previously announced repurchase authorization.
The completion of the transaction, which is expected in the second half of 2016, is subject to certain conditions, including receipt of regulatory approval in certain jurisdictions, including the United States and European Union, the receipt of necessary approvals from both Pfizer and Allergan shareholders, and the completion of Allergan’s pending divestiture of its generics business to Teva Pharmaceuticals Ltd., which Allergan expects will close in the first quarter of 2016.
Pursuant to the terms of the merger agreement, the Allergan parent company will be the parent company of the combined group. A wholly owned subsidiary of Allergan will be merged with and into Pfizer, and subject to receipt of shareholder approval, the Allergan parent company will be renamed “Pfizer plc” after the closing of the transaction. Immediately prior to the merger, Allergan will effect an 11.3-for-one share split so that each Allergan shareholder will receive 11.3 shares of the combined company for each of their Allergan shares, and the Pfizer stockholders will receive one share of the combined company for each of their Pfizer shares. Pfizer’s U.S. stockholders will recognize a taxable gain, but not a loss, for U.S. federal income tax purposes. The transaction is expected to be tax-free for U.S. federal income tax purposes to Allergan shareholders.
Pfizer stockholders will have the opportunity to elect to receive cash instead of stock of the combined company for some or all of their Pfizer shares, provided that the aggregate amount of cash to be paid in the merger will not be less than $6 billion or greater than $12 billion. In the event that the aggregate cash to be paid in the merger would otherwise be less than $6 billion or greater than $12 billion, then the stock and cash elections will be subject to proration.
Following the transaction, and assuming that all $12 billion of cash is paid in the merger, it is expected that former Pfizer stockholders will hold approximately 56% of the combined company and Allergan shareholders will own approximately 44% of the combined company on a fully diluted basis.
Governance and Leadership
Pfizer plc’s board is expected to have 15 directors, consisting of all of Pfizer’s 11 current directors and 4 current directors of Allergan. The directors from Allergan will be Paul Bisaro, Allergan’s current Executive Chairman, Brent Saunders, Allergan’s current Chief Executive Officer (CEO), and two other directors from Allergan to be selected at a later date. Ian Read, Pfizer’s Chairman and CEO, will serve as Chairman and CEO of the combined company. Brent Saunders will serve as President and Chief Operating Officer of the combined company. He will be responsible for the oversight of all Pfizer and Allergan’s combined commercial businesses, manufacturing and strategy functions.
Guggenheim Securities, Goldman, Sachs & Co., Centerview Partners and Moelis & Company are serving as Pfizer’s financial advisors for the transaction, with Wachtell, Lipton, Rosen & Katz, Skadden, Arps, Slate, Meagher & Flom LLP and A & L Goodbody acting as its legal advisors.
J.P. Morgan and Morgan Stanley are serving as Allergan’s financial advisors for the transaction with Cleary Gottlieb Steen & Hamilton LLP, Latham & Watkins LLP and Arthur Cox acting as its legal advisors.
Thank You Mr Durden and ZH.