(Reuters) - Allergan Plc’s shares soared as much as 16 percent in premarket trading on Thursday, a day after media reports that Pfizer Inc had held early talks with the Botox-maker about a deal that would create the world’s biggest drugmaker.
A combination of Dublin-based Allergan with New York-based Pfizer would create a $330-billion pharma giant and extend an unprecedented wave of consolidation in the industry as companies seek access to new drugs and increased leverage on pricing.
Maxim Jacobs, an analyst at Edison Investment Research, said a deal would make sense for Pfizer.
“Pfizer desperately needs a large acquisition and the resulting synergies to reinvigorate its tepid earnings growth rate,” Jacobs said in an email.
“Also Allergan would help Pfizer escape the uncompetitive U.S. corporate tax rate, which has led company after company to domicile away from its shores.”
Chris Schott, an analyst at JP Morgan, also suggested that a deal would allow Pfizer to re-domicile to lower-tax Ireland.
Apart from tax considerations, a deal would give Pfizer access to Allergan’s dominance in the aesthetics and ophthalmology markets, which Morningstar analyst Michael Waterhouse described as “particularly attractive assets.”
At Wednesday’s closing prices, Allergan had a market value of $113 billion, while Pfizer was worth $219 billion. Pfizer’s shares were up 1 percent in premarket trading on Thursday.
Combining the two would displace Johnson & Johnson as the world’s biggest healthcare group.
Healthcare deal-making hit a record of $392.4 billion in 2014 and has already surpassed that this year, reaching $447.5 billion as of Sept. 10, according to Thomson Reuters data.
If a deal is struck, Pfizer would inherit Allergan’s large long-term debt, which stood at $42.87 billion as of June 30.
Wall Street Journal reported that talks between the two companies were at an early stage and may not result in a deal. (on.wsj.com/1XA0qdo). The Financial Times also described the talks as preliminary. (on.ft.com/1RfNVzV)
Reuters was not able to confirm the reports, but the news did not come as a surprise to many analysts.
This would not be the first attempt by Pfizer to buy a big rival. The company tried to buy Anglo-Swedish drugmaker AstraZeneca Plc last year but couldn’t come to terms.
“When you’re the size of Pfizer, an acquisition like this may be the only choice you have in order to be able to move the needle for sequential growth ... so the question now becomes, if not this, what, and if not now, when?” said WBB Securities’ analyst Stephen Brozak.
Shares of Allergan, the result of a merger between Actavis Plc and Allergan Inc earlier this year, were trading at $334.90 premarket. Pfizer shares were trading at $35.90.
Reporting by Vidya L Nathan in Bengaluru; Editing by Ted Kerr