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Pfizer [PFE] to acquire Allergan [AGN] as oil catches a bid

Written By | Nov 23, 2015

WASHINGTON, November 23, 2015 – First of all, last week’s heavily rumored pharmaceutical-health sector deal of the century has officially come together this Monday morning. Drug industry giant Pfizer (symbol: PFE) has just announced a deal to acquire another of the industry’s heavy hitters, Allergan (AGN) for a whopping $363.63 per AGN share. That would make the deal worth some $160 billion, with a capital “B.”

In other big news, over the weekend, the Saudi oil barons seemed open this weekend to easing off their price-wrecking oil glut policy, indicating they may show some flexibility during an upcoming December meeting of OPEC cartel members in Vienna.

Saudis, OPEC to allow oil prices to firm?

According to a release from the Saudi press agency, while speaking to a seminar audience in Bahrain, Ali bin Ibrahim al-Naimi, Saudi Arabia’s minister for petroleum and mineral resources was quoted as finally acknowledging the troubles its price-busting all-out oil pumping effort—geared toward throttling more expensive U.S. shale oil extraction—was causing for at least some cartel members, notably Venezuela and Iran:

“Perhaps it would be fitting here to mention the role of the Kingdom of Saudi Arabia in the stability of the oil market, and its continued willingness and prompt, assiduous efforts to cooperate with all oil producing and exporting countries, both from within and outside OPEC, in order to maintain market and price stability.”

Prices for West Texas Intermediate crude, which stabilized somewhat late last week after a brief drop below $40 bbl., were up sharply for a time Monday morning after al-Naimi’s remarks hit the wires, although that jump has pulled back somewhat now. At 11 a.m. EST, WTI is up 36 cents at $42.26, while Brent crude, the international benchmark, is up 68 cents at $45.34.

Oil prices had been smashed for much of last week, with some oil bears predicting a drop that would peg black gold as low as $20 bbl., so even a hint of Saudi backtracking on its current strategy like this one seems to have stabilized oil’s latest slide toward oblivion, at least for now. There are likely to be more exciting chapters in this page-turner of this international business thriller before the current game reaches its final move, however. Meanwhile, U.S. oil and refinery stocks are modestly up on the news.

Pfizer’s Allergan bid: No inversion aversion here…

Back to the international drug emporium, Pfizer’s bid for Allergan would seem to be in direct defiance of the Obama administration’s efforts to halt the increasingly massive move by major American corporations to elude their huge U.S. corporate income tax burdens by transacting so-called “inversion” acquisitions or mergers.

In an “inversion” transaction, a U.S. company acquires a company that’s domiciled in a foreign country—frequently Ireland—not only for strictly business reasons, but also to re-incorporate in that foreign country to take advantage of a much-lower corporate income tax burden.

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Allergan itself ended up headquartered in Dublin quite recently. Fighting off a hostile and quite dubious takeover attempted by the controversial Bill Ackman via the virtually piratical Québec-based Valeant (VRX)—whose growth-by-rapacious-acquisition strategy has recently come under criticism and investigation here in the U.S.—America-based Allergan found a white knight in Dublin-based consumer and pharmaceutical drug company Warner-Chilcott.

Warner-Chilcott, in turn, had hugely enlarged itself a couple of years back by requiring a drug and product portfolio from continually right-sizing U.S.-based consumer and drug conglomerate Proctor & Gamble (PG). This after gobbling up another U.S. drug major, Wyeth in an earlier transaction. Are you following us here? Are you seeing a pattern?

Under hostile takeover fire, Allergan saw the wisdom in teaming with Warner-Chilcott and agreed to the transaction not only to save its integrity but to take part in an inversion move before the whole inversion game drew fire from the current Administration.

Obstinate and self-righteous as always, this Administration has stoutly resisted any attempt to halt the inversion urge by dropping U.S. corporate tax rates closer (and lower) to what they are in the rest of the world. Such a move would also help repatriate the trillion-plus dollars of revenue major U.S. firms have parked abroad for the same reason. Allergan slipped through the closing government net anyway.

Warner-Chilcott was so happy with the results that they even adopted the much more prestigious name and symbol of their acquisition, Allergan, after the deal was completed. The new Allergan retains the huge tax advantage of its Dublin address (approximately 12.5 percent in Ireland vs. approximately 35 percent in the U.S.). Now it looks like Pfizer is ready to offer the big bucks to join in the Allergan fun.

So it is that the U.S. loses even more tax revenue and influence, as the worst presidency in American history slouches toward its eighth and hopefully last year of utter and complete failure.

Monday’s markets at noon

Meanwhile, markets are marginally positive as we approach the noon hour on Monday, with the Pfizer-Allergan-oil optimism now being tempered by weaker-than-expected home resale numbers that were reported mid-morning. The early Santa Claus rally is still (barely) salvageable. This week’s tape may tell the rest of the story.

Expect relatively brief reports for the rest of this week for this holiday-shortened trading week. Thursday, Thanksgiving Day, is a national holiday and markets and banks are closed. Black Friday, a traditionally big day for retailers, will see Wall Street open for only a half-day of trading. We’ll print holiday trading hours and settlement details in a short additional report today or tomorrow.

Terry Ponick

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17