Pfizer's designs on AstraZeneca stir tax envy among rivals

Thu May 1, 2014 1:10am EDT
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By Olivia Oran and Soyoung Kim

NEW YORK (Reuters) - Rumors about a massive healthcare deal were circulating in industry circles, months before Pfizer Inc (PFE.N: Quote) disclosed its $100 billion pursuit of Britain's AstraZeneca Plc (AZN.L: Quote) AZN.N, according to several industry bankers and lawyers.

As rivals and bankers assessed what it could mean for different companies in the industry, one aspect touched nearly everyone: what it could mean for an increasingly popular U.S. tax loophole.

U.S. healthcare companies worried that if a household name like Pfizer changed its domicile to Britain to lower its tax rate as a result of a deal with AstraZeneca, it would spur Congress into action and close the tax arbitrage opportunity, called tax inversion, for everyone else, these people said.

The fear of such an outcome - even though it is likely many months, if not years, away - added new urgency to companies such as Botox-maker Allergan Inc (AGN.N: Quote) and generic drugmaker Mylan Inc (MYL.O: Quote) that were already looking at European targets, people familiar with these situations said.

Allergan declined to comment. Its CEO David Pyott has said that he would be uncomfortable doing a deal where the tax benefit, and not strategy, was the principal driver. Mylan could not be immediately reached for comment.

Now that Pfizer's plans are out in the open, pitching by bankers on inversion targets has reached a fever pitch. While tax arbitrage deals have so far largely been in the pharmaceutical sector, bankers and lawyers said U.S. technology, consumer and industrial companies are also now looking into the possibility of doing a tax inversion deal.

One banker, who declined to be identified because he is actively advising companies on such deals, said the Pfizer plan "will get people to try to move a lot quicker" so that they can get a deal "grandfathered in" before any possible law change.


The logo of AstraZeneca is seen on a medication package in a pharmacy in London April 28, 2014. REUTERS/Stefan Wermuth