Biotech Values

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PFE/AGN: CitiGroup's view:

November 20, 2015, 3:28 P.M. ET
Pfizer & Allergan are Going to Merge and There’s Nothing the IRS Can Do
By Ben Levisohn

Citigroup’s Liav Abraham and team argue that the odds of a merger between Pfizer (PFE) and Allergan (AGN) are increasing, and there’s little the IRS can do about it. They explain why:


andrew kelly/Reuters
…the release issued by the Treasury is notable for the lack of any material new rules pertaining to inversion transaction, but rather addresses specific nuances pertaining to the rules issued last year. Moreover, as we had anticipated, “merger of equals” transactions (into which a potential Allergan-Pfizer transaction would fall) are not addressed in the new rules, likely due to the far-reaching and unintended consequences of imposing limitations on these types of transactions, in our view…

The lack of material action by the Treasury increases the probability of the announcement of a definitive Pfizer-Alergan merger over the very near term, in our view. This view is reinforced by commentary in today’s press, which points to an all-stock transaction that values Allergan at c.$380/share. While there are reports of some concerns surrounding Allergan’s R&D business model, which differs from that of Pfizer, we maintain our view regarding Allergan’s commitment to innovation (albeit with a lesser focus on internally discovered assets), and believe that there is room for Allergan’s R&D approach in its core therapeutic areas to co-exist within Pfizer’s innovation eco-system.

Shares of Allergan have gained 3.8% to $413.46 at 3:25 p.m. today, while Pfizer has dropped 0.5% to $32.15.