Amid the clamour over Pfizer's approach to Allergan about a possible merger, one thing has escaped attention. It will come as a relief to the US drug giant that no one is questioning the wisdom of the approach or the ability of the companies to do a deal. Instead, the debate is about the price.
Yes, there is the usual frenetic clamour from all sides of the US Congress about the evils of corporate tax inversion and the need to clamp down on US companies looking to relocate to more advantageous tax jurisdictions, but this is predictable stuff. Equally predictable is the sense that, for all its outrage, Congress will not change the law to frustrate such deals.
The only deterrents are the measures imposed by the Obama administration to limit the opportunity for such tax inversions. Essentially, to pull off the merger, Pfizer simply needs to ensure it has control of no more than 60 per cent of the merged company. That's what Pfizer chief executive Ian Read is betting on.
Read is on the record as saying that Pfizer needs to look at its tax position if it is to compete properly. He is aware that the clock is ticking, A new president and a new Congress at the end of 2016 could see the rules change. Even now, given Pfizer’s size, the inversion threshold limits the number of targets, as most rivals would be too small to reach the necessary 40 per cent threshold in a merged business.
Allergan and the UK-based GlaxoSmithKline (GSK) were seen as the two most likely to fit the requirements. And while GSK may make more sense in business terms, Pfizer is wary of a second adversarial contest with a British pharma after its futile pursuit last year of AstraZeneca.
Allergan, while domiciled in Dublin, is by culture an American firm and the US remains the focus of its operations.
But Allergan, or Actavis as it was previously, is ambitious in its own right. Persuading chief executive Brent Saunders and his board that a merger with Pfizer makes sense will require a hefty bid premium – and possibly some promises on C-suite positions and succession.
Apart from the dynamics of the mergers and acquisitions arena, a bid premium will be a prerequisite to ensure Allergan hits the 40 per cent inversion threshold. At current market prices – $310 (€282) a share – it is short of that, but analysts are confident that any successful Pfizer bid will eventually price those shares closer to $400. It’s all down to price.