On November 23, 2015, Pfizer Inc. issued a press release announcing its intent to merge with Allergan. The press release began with a listing of all of the benefits that the merger would bring. Here’s the entire list.
• 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 EPS1 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
That sounds like a worthy endeavor, doesn’t it?
The press release went on to say that Allergan’s businesses would “align with and enhance Pfizer’s businesses, creating best-in-class, sustainable, innovative and established businesses that are poised for growth.”
Allergan’s CEO called the deal a “highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better.”
Well, I for one would not want to pass up a deal that will change lives for the better, and I’m sure you wouldn’t want to either.
Way down in the eighth paragraph of the release, under the heading of “Financial Highlights,” appears this sentence:
“Pfizer anticipates that the combined company will have a pro forma Adjusted Effective Tax Rate of approximately 17%-18% by the first full year after the closing of the transaction.” It did not mention that Pfizer paid 26% last year.
In fact, that is the only mention of corporate taxes in the release, delivered in a rather “Oh, by the way…” fashion. But analysts were quick to declare that the sole reason for the transaction was to move the Pfizer headquarters to Ireland where the company would enjoy a significantly reduced tax burden.
Well, damn it, that’s just not fair. The press release barely mentions taxes, and instead makes very clear that the merger would bring near-magical benefits to everyone, everywhere. It would create a unified pipeline with more than 100 – that’s One Oh Oh – new drugs. For God’s sake, it would CHANGE LIVES FOR THE BETTER! The sooner they get this deal done, the better, that’s what I say.
But the ever-cynical media and congressmen continued to whine, “Inversion! Stop the inversion!”
And the next thing you know, the tax loophole that would have benefitted Pfizer’s management and shareholders so mightily went away.
Naturally, with all of the other benefits Pfizer and Allergan boasted about in their announcement, the tax issue had to be merely a secondary consideration, a happy coincidence. Right?
Just 48 hours after the Obama administration put a plug in that loophole, Pfizer walked away from the deal.
“New and Improved!” out; “Old and Crappy” in.
I’m shocked, shocked!
Categories: Random PR Thoughts
Chris – As usual, right on track. However, “inversions” wouldn’t even be an issue if the U.S. did not have the highest corporate tax rate in the world and we didn’t insist on taxing income earned outside of the U.S., as well. It’s a crappy system that begs for companies to behave this way. (And a “loophole” is not an illegality; it’s merely a crease in a far-too-complicated [intentionally complicated] tax system.) Our bloviating political leaders could do something useful and simplify the tax code, but that would take work. (Not their strong suit.)
I’m right there with you, Don. Frankly, considering all the crap Pfizer took, I wonder if they simply would have been better off with a press release that began, “In a transparent effort to reduce our corporate taxes, improve shareholder returns, and invest in new drugs in our pipeline, Pfizer intends to merge with Allergan and relocate our headquarters to Ireland, saving billions in taxes we can better use to benefit our stakeholders.” Could not have turned out any worse.
Politicians thrive on votes. It’s the only way they can get elected. Job security.
So, if enough voters are offered enough “free stuff” from our government (i.e. taxpayers) then who is left to pay for all of that free stuff?
The top 1% of Americans and big businesses with only a few lawyers on staff that get stuck paying taxes.
Can’t argue with that.