Pfizer Inc & Allergan Inc Have Fallen Out Of Love, But What Does This Mean For Astrazeneca Plc & Shire Plc?

Could the split between Pfizer Inc (NYSE: PFI) and Allergan Inc (NYSE: AGN), mean that Astrazeneca Plc (LON: AZN) is back in play, or could it mean that Shire Plc (LON: SHP) becomes a target?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Tax inversions have been a thing among US companies since the early 1980’s. However, over time the number of companies seeking to redomicile has grown, as has the value of the deals and the associated tax revenues lost by the US government. There have been more than 50 such deals since the 1980’s, although almost half of these have taken place between 2012 and 2016, suggesting that the number of US based companies seeking to invert has increased notably in recent times.  

The previously proposed tie up between Pfizer Inc (NYSE: PFE) and Allergan Inc (NYSE:AGN) was the largest such deal ever to have been attempted, with the price tag that Pfizer was prepared to pay being in excess of £100bn. Ever since rumours of the purchase first began to circulate, legislating to prevent such corporate manoeuvres has been a top priority in Washington.

The last laugh

Last week, in the absence of action from Congress, the US Treasury Department had what appears to be the last laugh on the inversion issue, at least as far as the Pfizer-Allergan deal is concerned. While acknowledging that inversions cannot be stopped without legislation from Congress, the US Treasury announced a wave of new measures that will make it more difficult for some US companies to invert.

The new rules have already had an effect as, on Wednesday afternoon, both Pfizer and Allergan announced that they will no longer be going ahead with the merger and will instead, go their own separate ways. The news prompted strong gains across the London pharma sector, with shares in Astrazeneca (LSE: AZN) and Shire (LSE:SHP) each rising by almost 5% as traders speculated that Pfizer could soon be back on the acquisition trail in London.

The rub

Whether or not the US Treasury’s new rules will eliminate the practice of inversions, or even just reduce the prevalence of them, still remains to be seen. However, one thing that is for sure is that, in an election year, corporate taxes and tax inversions will make for a brilliant political football. It seems possible, maybe even likely, that Congress comes under increasing public pressure to get its act together on the subject of inversions and to legislate in order to prevent them.

Regardless of whether they do or don’t, the US Treasury department seems determined enough to make life difficult for corporate tax avoiders and this alone should probably provide cause for concern among speculators hoping to see Pfizer back in London. It seems clear from the announcement that it does not take issue with genuine mergers and acquisitions, which take place for non tax purposes, but that when companies use M&A to avoid taxes they will act where possible.

Strategic sense

If Pfizer or any other company seeking to invert could demonstrate that an acquisition in London would make strategic sense for the business, for growth or efficiency’s sake, then it seems possible that they would have a ‘get out of jail free card’ on the subject and they may then be able to carry out an inversion in disguise.

However, with two empty pipelines between them, as well as two sets of revenues exposed to patent expiration induced decline, it is less clear as to whether a merger with either Astra or Shire would make any kind of strategic sense for Pfizer once the obvious tax benefits are set aside.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »