Botox maker Allergan Plc and Pfizer Inc on Thursday said they were in early, friendly talks to create the world’s largest drugmaker and potentially set up Pfizer to take advantage of Ireland’s lower tax rates.
Both New York-based Pfizer and Dublin-based Allergan said no agreement has been reached and declined to discuss any terms.
Allergan shares jumped 8 percent to $309.97 in U.S. trading, while Pfizer was off 2.4 percent at $34.60.
Given that both sides characterized the talks as “friendly,” Pfizer is likely to have a much smoother path after running into intense political opposition in Britain and from AstraZeneca Plc’s board in its failed, unsolicited bid last year.
“It’s definitely a far easier target for Pfizer than AstraZeneca,” said Christophe Eggmann, investment director at GAM, who holds shares in both companies. “It fits pretty well … for Pfizer, so the hurdle will really be the price.”
Pfizer could still face political pushback at home, particularly during the U.S. presidential campaign as candidates take aim at high prescription drug prices and companies looking to avoid paying U.S. taxes.
“It will make for good theater about evil corporate America, but Pfizer is looking out for the interest of shareholders,” said Mike Krensavage, principal at Krensavage Asset Management.
On Thursday before the companies confirmed the talks, Pfizer Chief Executive Officer Ian Read reiterated his criticism of U.S. corporate taxes.
“Our tax rate highly disadvantages American multinational high-tech businesses,” Read said, speaking at a Wall Street Journal event. “I am fighting with one hand tied behind my back.”
Pfizer’s effective tax rate 25 percent, while Allergan’s is 15 percent.