Is The Allergan-Pfizer Deal Over? What Wall Street Thinks
By Tyler Durden
Yesterday’s stunning announcement by the US Treasury, which released a report titled “Treasury Announces Additional Action to Curb Inversions, Address Earnings Stripping“, and which was clearly aimed at ending not only all tax inversions, but the biggest pharma M&A deal in history, Pfizer’s tax-inverting takeover of Allergan (pardon Actavis) hit AGN like a ton of bricks, sending the stock crashing 20%.
As we previewed last night, we expect numerous M&A arbs to be puking up blood this morning, following the biggest spread blow out in recent history in a $100+ billion deal that involved virtually everyone, from plain vanilla funds to the fastest of the fast money.
But is the deal over? Here are some Wall Street opinions (via BBG).
Citi: “Deal likely to be over”
- U.S. ownership of combined Pfizer-Allergan will probably approach and may exceed 80% threshold under new Treasury Dept. regulation, “likely precluding” deal from taking place as an inversion, Citi analyst Liav Abraham says in note.
- Even if domestic ownership is in 60%-80% range, Citi says PFE would probably have difficulty importing its offshore cash balances, providing sufficient cause for the deal not to move forward
- Expects AGN will see multiple contraction over near term as deal had insulated stock from recent multiple contraction in specialty pharma; says AGN warrants premium to peer group due to earnings quality, growth profile and balance sheet,
Evercore ISI: “Pfizer-Allergan deal trading like it’s “95% dead”
- Arbs focused on 3-year look back provision for AGN acquisitions, whether co. will be viewed as appropriately sized for a deal, Evercore ISI analyst Mark Schoenebaum says in note
- Arbs note that the Treasury Dept. regulations released Monday are “proposals” and aren’t “implemented;” unclear whether cos. would litigate damages
- Deal includes clause that may require only $400m breakup fee on “adverse changes in tax law,” Evercore ISI analyst Umer Raffat writes
Bernstein: “distinct possibility” regs don’t end up jeopardizing the PFE-AGN deal
- Bernstein analyst Tim Anderson says in note that there’s a “distinct possibility” that the new Treasury regs don’t end up jeopardizing the PFE-AGN deal
- If AGN pact falls through, PFE could revisit AstraZeneca or Glaxo if rules don’t squash appetite for inversion deals
Jefferies: “Treasury may derail the PFE-AGN deal“
- Jefferies analysts led by Jeffrey Holford say in note that Treasury action may derail the PFE-AGN deal and could spell the end of PFE’s inversion attempts
* * *
But the best summary of what just happened comes from Goldman’s Alec Phillip, as explained in his overnight note “Treasury Releases New Inversion-Focused Tax Regulations.” The implications are substantial not only for Allergan, but the entire inversion space.
From Goldman:
BOTTOM LINE: The Treasury has released regulations that might increase the effective tax rate of foreign companies operating in the US and would put further restrictions on some pending and future corporate inversion transactions.
MAIN POINTS:
1. The Treasury released stronger-than-expected changes to tax rules related …read more
Source: Is The Allergan-Pfizer Deal Over? What Wall Street Thinks
