Policymakers Criticize Potential Merger Between Allergan, Pfizer
A recently announced merger between drugmakers Allergan and Pfizer has drawn significant criticism from U.S. policymakers, including several presidential candidates, the AP/Sacramento Bee reports (Johnson/Murphy, AP/Sacramento Bee, 11/23).
The boards of Allergan and Pfizer on Sunday approved a $150 billion merger agreement that would make the combined company the largest drugmaker, by revenue, in the world. The deal is subject to approval by antitrust regulators throughout the world.
Under the agreement, Dublin-based Allergan, the smaller of the two companies, would purchase New York-based Pfizer, according to individuals briefed on the matter. The insiders said Allergan shareholders would receive 11.3 Pfizer shares for each of their holdings under the deal. The agreement would also include a cash component, the insiders said.
Pfizer CEO Ian Read would head the combined company, while Allergan CEO Brent Saunders would serve as company's president and COO, according to those briefed on the matter.
If the deal is approved, the combined company would unseat Johnson & Johnson as the world's largest drugmaker by revenue. Together, Pfizer and Allergan generate more than $60 billion in sales. Analysts do not expect the merger to significantly affect the prices of the companies' products.
The deal would mark the largest-ever corporate inversion. Inversions occur when U.S.-based companies move to a country with a lower corporate tax rate. Under current rules, Pfizer has to pay U.S corporate taxes on revenue generated from international operations if it returns such revenue to the U.S. Pfizer's tax rate this year is expected to be about 25%, while Allergan's is predicted to be about 15%. Pfizer could see its tax rate drop to between 17% and 18% under the merger (California Healthline, 11/23).
Presidential Candidates Blast Proposed Merger
Former Secretary of State Hillary Clinton, who is seeking the Democratic presidential nomination, in a statement said, "For too long, powerful corporations have exploited loopholes that allow them to hide earnings abroad to lower their taxes. Now Pfizer is trying to reduce its tax bill even further." She added, "This proposed merger, and so-called 'inversions' by other companies, will leave U.S. taxpayers holding the bag" (Wolfgang, Washington Times, 11/23).
Sen. Bernie Sanders (D-Vt.), who is also seeking the Democratic presidential nomination, in a statement said the "merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs," noting, "It also would allow another major American corporation to hide its profits overseas." Sanders said the Obama administration should "exercise [its] authority" to block the merger and called on Congress to develop legislation to hold corporations accountable for "their fair share of taxes."
Similarly, former Maryland Gov. Martin O'Malley (D), who is also seeking the Democratic presidential nomination, called the merger "fundamentally unfair, and a prime example of how our capitalist economy is not supposed to work."
Meanwhile, Donald Trump, who is seeking the Republican presidential nomination, in a statement said the deal could result in U.S. job losses. He noted, "The fact that Pfizer is leaving our country with a tremendous loss of jobs is disgusting. Our politicians should be ashamed" (Nicholas, "Washington Wire," Wall Street Journal, 11/23).
Proposal Sparks Calls for Tax Reform
The deal has also renewed debate over tax reform in the U.S, the New York Times reports.
According to the Times, the Department of the Treasury in 2012 unveiled a framework for rewriting the corporate tax code that aimed to:
- Close loopholes;
- Expand the base of taxable business income; and
- Reduce corporate income tax rates to try to keep businesses in the U.S. (Calmes, New York Times, 11/23).
Senate Finance Committee Chair Orrin Hatch (R-Utah) on Monday said the tax code needs to amended, if not completely rewritten. He noted last week in a statement, "The best way to resolve these issues would be through a comprehensive tax overhaul," adding, "It's imperative we explore what actions can be taken now." Hatch continued, "Any permanent solution to combating inversions should be legislated by Congress," but noted that "for that to happen, we must have strong leadership from the White House" (New York Times, 11/23).
Similarly, Sen. Charles Schumer (D-N.Y.) called on Congress to rework U.S. tax laws to prevent inversions (AP/Sacramento Bee, 11/23).
Meanwhile, Sen. Jack Reed (D-R.I.) in a statement called on Republican leaders to bring to a vote anti-inversion legislation (HR 415, S 198) that was introduced in Congress earlier this year ("Deal B%k," New York Times, 11/23).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.