Pfizer and Allergan in $160B merger

(Edited: Previous version of this article said that this was “one of the largest mergers in the pharmaceutical industry history”, whereas it is the largest ever pharmaceutical mergers)

Pfizer and Allergan have entered into a definitive merger agreement under which Pfizer will combine with Allergan in a transaction valued at about $160 billion .

The companies on Monday confirmed what has been rumored in the last couple of days, the largest mergers in the pharmaceutical industry history.

According to the joint press release, the stock transaction is currently valued at $363.63 per Allergan share, based on the closing price of Pfizer common stock of $32.18 on November 20, 2015.

The transaction represents more than a 30 percent premium based on Pfizer’s and Allergan’s unaffected share prices as of October 28, 2015. Allergan shareholders will receive 11.3 shares of the combined company for each of their Allergan shares, and Pfizer stockholders will receive one share of the combined company for each of their Pfizer shares.

Ian Read will serve as Chairman and CEO of Pfizer plc

Ian Read, Chairman and CEO Pfizer said that the merger would create a leading global pharmaceutical company that will enhance Pfizer’s and Allergan’s businesses, creating “best-in-class, sustainable, innovative and established businesses” poised for growth.

Investments in the U.S.

Commenting the combination, Read said: “Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients, direct return of capital to shareholders, and continued investment in the United States, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry.”

Allergan CEO Brent Saunder added that the combination is a highly strategic, value-enhancing transaction that brings two biopharma powerhouses together to change lives for the better.

He said that this transaction would allow Allergan to operate with greater resources at a much bigger scale.

“Joining forces with Pfizer matches our leading products in seven high growth therapeutic areas and our robust R&D pipeline with Pfizer’s leading innovative and established businesses, vast global footprint and strength in discovery and development research to create a new biopharma leader,” Saunders said.

Pfizer plc

Press release revealed that the companies will be combined under Allergan plc, which will be renamed to “Pfizer plc”. Shares of the combined company are expected to be listed on the New York Stock Exchange under “PFE” ticker. Pfizer plc will be headquartered in New York and will have executive offices in Ireland.

Pfizer to separate innovative and established businesses

As a result of the combination with Allergan and subsequent integration of the two companies, Pfizer now expects to make a decision about a potential separation of the combined company’s innovative and established businesses by no later than the end of 2018, the press release reads.

Furthermore, the combined company is expected to generate annual operating cash flow in excess of $25 billion beginning in 2018.

Completion of the transaction in 1H 2016

The completion of the transaction, which is expected in the second half of 2016, is subject to certain conditions, including receipt of regulatory approval in certain jurisdictions, including the United States and European Union, the receipt of necessary approvals from both Pfizer and Allergan shareholders, and the completion of Allergan’s pending divestiture of its generics business to Teva Pharmaceuticals Ltd., which Allergan expects will close in the first quarter of 2016.

What shareholders get?

Allergan shareholder will receive 11.3 shares of the combined company for each of their Allergan shares, and the Pfizer stockholders will receive one share of the combined company for each of their Pfizer shares. Pfizer’s U.S. stockholders will recognize a taxable gain, but not a loss, for U.S. federal income tax purposes. The transaction is expected to be tax-free for U.S. federal income tax purposes to Allergan shareholders.

Cash instead of combined company’s stock

Pfizer stockholders will have the opportunity to elect to receive cash instead of stock of the combined company for some or all of their Pfizer shares, provided that the aggregate amount of cash to be paid in the merger will not be less than $6 billion or greater than $12 billion.

Ian Read to serve as Chairman and CEO of Pfizer plc

The new company’s board is expected to have 15 directors, consisting of all of Pfizer’s 11 current directors and 4 current directors of Allergan. The directors from Allergan will be Paul Bisaro, Allergan’s current Executive Chairman, Brent Saunders, Allergan’s current CEO, and two other directors from Allergan to be selected at a later date.

Ian Read, Pfizer’s Chairman and CEO, will serve as Chairman and CEO of the combined company. Brent Saunders will serve as President and Chief Operating Officer of the combined company.

Guggenheim Securities, Goldman, Sachs & Co., Centerview Partners and Moelis & Company are serving as Pfizer’s financial advisors for the transaction, with Wachtell, Lipton, Rosen & Katz, Skadden, Arps, Slate, Meagher & Flom LLPand A & L Goodbody acting as its legal advisors.

J.P. Morgan and Morgan Stanley are serving as Allergan’s financial advisors for the transaction with Cleary Gottlieb Steen & Hamilton LLP, Latham & Watkins LLP and Arthur Cox acting as its legal advisors.