Pfizer, one of the world’s largest pharmaceutical companies by revenues, is in talks with Dublin-based Botox maker Allergan about a potential merger.
The deal would allow Pfizer to take advantage of the low tax rates in Ireland and pursue a corporate inversion.
Ireland has a 12.5 percent corporate tax rate as well as making it relatively easy to move profits into zero-tax locales.
Many American companies with subsidiaries in Ireland end up paying a tax rate on those units’ profits in the low single-digits. Pfizer’s current tax rate is about 25 percent.
The two companies said on Thursday that they were in “preliminary friendly discussions.”
The merger would make Pfizer the world’s largest pharmaceutical company against, a position it lost when Lipitor went off-patent.
Pfizer reports annual sales of about $48 billion and Allergan is forecast to report revenue of over $8 billion in the second half of fiscal 2015.
The merger doesn’t only offer significant tax benefits for Pfizer. It would also give the drug giant access to Allergan’s wrinkle treatment Botox, with generates $2.4 billion in annual sales, as well as the $1.3 billion Restasis dry eye treatment.
Allergan had a market value of $113 billion at Wednesday’s close. Its shares jumped 6 percent closing at $304.38 on Thursday.
Pfizer shares dropped 1.9 percent to $34.77 at the close.
US politicians strongly against tax inversion maneuvers
A spokesman for Democratic front-runner Hillary Clinton said that the candidate had not seen the details of the deal, but stressed that she is against tax inversion maneuvers.
“Clinton is committed to cracking down on so-called ‘inversions,’ where a company chooses to leave the U.S. on paper to game the tax system, and believes we should reform our tax code to encourage investment in the U.S., rather than shipping earnings and jobs overseas,” Clinton spokesman Ian Sams said.
Democratic U.S. Senator Charles Schumer of New York said in a statement: “The continued pursuit of inversions, mergers and foreign acquisitions of major U.S. companies for purely tax purposes shows there is a lot more work to be done to stop them.”
Republican candidate Donald Trump said that the deal serves as a reminder that the country’s tax code needs to be updated.
“These corporate inversions take capital and, more importantly, jobs offshore,” he said in a statement. “We need leadership in Washington to get the tax code changed so companies will be coming to America, not looking for ways to leave.”
