Pfizer Inc. (NYSE:PFE) May Split After Swallowing Allergan PLC (NYSE:AGN)

Source: reuters

It is emerging that Pfizer Inc. (NYSE:PFE) may separate its various businesses after gobbling Allergan PLC (NYSE:AGN) in a deal valued at $150 billion. Pfizer was already considering a breakup transaction by late 2016 long before Allergan came into the picture. The acquisition of Allergan is expected to help Pfizer strengthen its businesses before it pulls them apart.

The inversion deal that Pfizer Inc. (NYSE:PFE) is pursuing with Allergan appears to have more than meets the eye in it. While on the face value the transaction is expected to result in a global pharmaceutical powerhouse, deep inside officials are thinking about setting free smaller, more pointed companies after the merger.

A $150 billion transaction

Long before Pfizer Inc. (NYSE:PFE) showed interest in acquiring Allergan for a historic $150 billion, the company’s officials had hinted about possible break up, predicting that it could come in 4Q2016. The officials talked about separating “Innovative business” (where branded drugs belong) from “Established business” (which includes generic and off-patent products.

Already, Pfizer has separated the two businesses internally and what would follow in case of complete separation is setting them free as standalone companies. Pfizer’s Established division is a slower-growing business compared to Innovation division.

Allergan to strengthen branded drugs division

While Allergan buyout may appear disruptive to Pfizer’s earlier breakup timing, a split transaction is still in view. The company hopes that bringing Allergan on board will add value to each of its divisions, thus strengthening them before splitting them apart. Allergan is especially expected to add value to the Innovative business.

At Pfizer Inc. (NYSE:PFE)’s recent earnings call, CEO, Ian Read, appeared to suggest that a major acquisition could only interfere with the timing of a breakup transaction but not destroy the logic behind it. Uniting only to break up later is a familiar script at Allergan. The company sold its generic business to Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) after it merged with Actavis and shifted its tax headquarters to Ireland.

Inversion deal

Buying Allergan would see Pfizer Inc. (NYSE:PFE) shift its tax base to Ireland. However, the U.S. government has been against inversion deals such as the one Pfizer is pursuing to reduce its corporate tax burden.