Pfizer mega plan puts focus back on Irish tax

Ireland’s tax regime may again face the international spotlight, at an uncomfortable time for the country, after two of the world’s pharmaceutical giants yesterday confirmed they are in talks over a mega billion dollar merger that appears to be driven by Irish tax considerations.

Botox-maker Allergan and Pfizer said they were in preliminary talks on a potential merger, a deal that would create the world’s largest drug maker.

A purchase of Allergan, which is registered in Ireland for tax purposes, with a market value of more than $113bn €102.4bn), would be the biggest in Pfizer’s long history of huge deals. It is worth almost $219bn.

And Pfizer chief executive Ian Read yesterday signalled that a so-called tax inversion deal with Allergan is one benefit from any acquisition.

With €7bn in exports, Pfizer Global of Cork is the 10th largest exporter in Ireland. It employs 4,000 people in eight facilities in Cork, Dublin and Kildare.

Allergan, which is itself the product of last year’s merger with Actavis, agreed in July to sell its generic-drug business to Israeli drugmaker Teva.

That deal excluded Allergan’s anti-wrinkle treatment Botox plant in Westport, Co Mayo, and another manufacturing plant and a European shared-services centre in Dublin.

Across those three operations, Allergan employs about 1,000 people here.

The news of the Pfizer talks extends a wave of mergers worth over $180bn so far this year that has swept over the healthcare industry, with many of those deals being driven by so-called tax inversion considerations where US firms seek out deals allowing them to relocate for tax purposes to lower-tax countries such as Ireland and Britain.

Pfizer says it’s in "preliminary friendly discussions" about combining with Allergan https://t.co/yiDMQJJKIs pic.twitter.com/3J7npMQ8oJ

— Bloomberg (@business) October 29, 2015

In the US, tax inversions have been hugely controversial and are likely to remain so as the US presidential race hots up.

John Whelan, one of Ireland’s leading trade experts, said that pharmaceuticals are Ireland’s largest export sector, accounting for €47bn in export sales in the first nine months of this year, up by a huge 47% from a year earlier.

“The sector was affected by patent protection issues for the past few years and a frenzy of mergers and acquisitions, the inversion process played out in Ireland’s favour particularly,” he said.

But Mr Whelan said those advantages may be undercut if the ongoing Brussels’ focus on corporate tax deals were to lead to a tougher regime. The commission’s decision on Apple’s tax affairs in Ireland is looming.

Mr Read, the CEO at Pfizer, said he was open to any moves that produce the best long-term value for the company.

A deal with Allergan could allow Pfizer to take advantage of the far lower corporate tax rate here, a similar strategy it pursued with a failed bid for British rival AstraZeneca last year.

“Our tax rate highly disadvantages American multinational hi-tech businesses.

I am fighting with one hand tied behind my back,” Mr Read said.

He said a tax inversion deal would boost Pfizer’s ability to invest in research.

Apart from tax considerations, the deal would give Pfizer access to Allergan’s dominance in the aesthetics field with Botox, and ophthalmology markets, which Morningstar analyst Michael Waterhouse described as “particularly attractive assets.”