A 7-year deal spree led to the biggest pharma merger ever -- and it all started with a tiny Irish drugmaker

Pfizer and Allergan will combine in a $US160 billion merger.

The deal will create a pharmaceutical giant, with drugs from Botox to Viagra in one portfolio.

It will also allow Pfizer to reincorporate in Ireland, where Allergan is domiciled and taxes are lower, in what’s known as a tax inversion.

The merger is just the latest in a string of deals that has allowed at least four different companies to cut their tax bills by merging into what is now called Allergan.

Here’s how that went down:

  • As Bloomberg’s Zachary Mider notes, it all started with a small pharmaceutical called Galen, based in Northern Ireland and founded in 1968.
  • By 2008, Mider notes, Galen had moved to Ireland and renamed itself Warner Chilcott. It had a market cap of about $US3.8 billion by late 2008.
  • Then, in 2009, Warner Chilcott bought Procter & Gamble‘s global pharmaceuticals business.
  • In 2013, Warner Chilcott was bought by Actavis, a New Jersey-based pharmaceutical. It moved its address to Ireland.
  • The Ireland-based Actavis bought another US firm, Forest Laboratories, in 2014.
  • Then, earlier this year, Actavis bought the California-based Allergan and took its name.
  • Now, the Ireland-based Allergan is merging with Pfizer.

“Pfizer anticipates that the combined company will have a pro forma Adjusted Effective Tax Rate of approximately 17%-18% by the first full year after the closing of the transaction,” Pfizer said in a statement. Currently, the drugmaker is paying an effective tax rate of 25%.

It’s no secret that Pfizer has been looking to do an inversion. CEO Ian Read has repeatedly said tax is a competitive challenge for companies like his in the US, and Pfizer even tried to pull off an inversion in 2014 by merging with the UK-based AstraZeneca.

Drugmakers are also keen to move overseas to avoid having to pay taxes on foreign profits. Once redomiciled in Ireland, Pfizer could bring some of its cash back to fund things like dividends and acquisitions without paying the higher US rates.

But the deal comes just as US lawmakers are changing the rules on tax inversion, so it could still be thwarted.

Last week, the Treasury Department released new rules to help block such deals. That follows the regulations the Treasury introduced in September 2014, after numerous high-profile inversions — and attempts — took place in 2013 and 2014.

Assuming it goes through, the Allergan-Pfizer deal is set to be the largest tax inversion deal on record.

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