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Analysts: New inversion rules BUSINESS A25
Wednesday 6 April 2016
would kill Pfizer-Allergan deal
Walgreens tops 2Q profit expectations
LINDA A. JOHNSON
AP Business Writer ate a drugstore chain with
Drugmakers Pfizer Inc. and Allergan Plc are scrambling
to determine whether to proceed with their plan more than 12,700 U.S. loca-
to merge and move Pfizer’s address — but not its
operations or headquarters — to lower-tax Ireland. tions, or far more than CVS
They are taking another look after the U.S. Treasury
Department issued new rules to make such “tax Health Corp. operates.
inversion” deals less profitable.
Both companies were mum Tuesday on what they’ll In its fiscal second quar-
do, other than to swat swirling rumors that they’re
leaning toward dropping the inversion. ter, Walgreens earnings fell
But analysts and tax experts are debating whether the
new, unexpectedly aggressive tax law changes issued 54 percent to $930 million
late Monday will kill the deal.
Most are saying the new rules likely will — and that due largely to an account-
the changes and their timing are squarely aimed
at preventing New York-based Pfizer, the biggest ing change it booked in
drugmaker based in the U.S., from completing its
proposed $160 billion Allergan acquisition and inversion 2015 after completing the
in the second half of the year.
“The Obama administration isn’t just sending a message acquisition of European
to Pfizer, it’s sending a message to all U.S. companies
contemplating inversions, and that message is ‘Don’t,” health and beauty retailer
said analyst Steve Brozak, president of WBB Securities
LLC. Alliance Boots.
Investors seem to view the deal as dead, and were
trading shares in the two companies at a furious pace Earnings, adjusted for
Tuesday. In late-afternoon trading, Allergan’s U.S.
shares were down $41.90, or 15.1 percent, at $235.65, one-time gains and costs,
with more than 33 million shares traded, 11 times normal
volume. Pfizer shares were up 81 cents, or 2.6 percent, came to $1.31 per share in
at $31.53, with 253 million shares traded, or 6 ½ times
average daily volume. A customer enters Walgreens, Tuesday, April 5, 2016, in New the most recent quarter.
Tax inversions and the need to overhaul the U.S. tax York. Walgreens beat Wall Street’s earnings expectations for its Revenue climbed about
structure have become a hot issue in the presidential fiscal second quarter as sales rose nearly 14%. 14 percent to $30.18 billion
campaign, with some candidates calling Pfizer and compared to last year’s
other companies considering them “unpatriotic.” (AP Photo/Mark Lennihan) quarter, which included
President Obama held a news conference Tuesday one month before Wal-
afternoon, saying the Treasury rules are meant to TOM MURPHY that supplies its drugstores,
prevent “one of the most insidious tax loopholes out
there” and prevent wealthy corporations from shirking AP Business Writer mail order and specialty greens closed the Alliance
their tax responsibility. Walgreens beat Wall pharmaceutical business- Boots deal at the end of
In an inversion, a big company buys a smaller one in Street’s fiscal second quar- es. It also detailed a part- 2014.
another country, usually with a lower tax rate, then ter expectations as total nership with Optum, the “We view this as a good
moves the combined company’s address on paper — sales jumped, but the na- pharmacy benefits man- performance, particularly
but little else — to that country. Allergan itself is the result
of multiple inversions, and despite its Dublin address is tion’s biggest drugstore ager run by the health in- given the weak cough,
operated from offices in Parsippany, New Jersey. chain remained conserva- surer UnitedHealth Group cold, flu season this year,”
No one expects Pfizer or Allergan to announce what
they’ll do soon, given the complexity of determining tive with its outlook while it Inc. global Chief Financial Of-
exactly how much of the inversion’s expected financial deals with several pressures In addition to those deals, ficer George Fairweather
benefit would be wiped out by Treasury’s 300-plus on its business. Walgreens is buying rival told analysts during a con-
pages of new regulations. Pfizer had expected to save
hundreds of millions of dollars in U.S. taxes annually by The Deerfield, Illinois, com- drugstore chain Rite Aid ference call.
doing the inversion. pany said Tuesday that it Corp. for more than $9 bil- Analysts expected, on av-
However, experts disagree on what Pfizer’s Plan B will
be and on Pfizer’s value and future prospects without would again raise only the lion, a deal the companies erage, earnings of $1.27
the proposed $160 billion Allergan acquisition and low end of its fiscal 2016 expect to close in the sec- per share on $30.72 billion,
inversion. forecast by 5 cents per ond half of this year. That according to Zacks Invest-
Cowen and Co. analyst Steve Scala wrote to investors
that Pfizer’s “innovative engine is starting to deliver, as share, as it did in January. combination could cre- ment Research.
evidenced by the success” of new breast cancer drug The drugstore chain has
Ibrance, the promise of its immune system-boosting
cancer drugs and growing sales of its pneumonia yet to bump up the top of House For Sale
vaccine Prevnar-13 and blood thinner Eliquis. that forecast range, which
Scala wrote Tuesday that Pfizer “has one of the
industry’s most expansive pipelines” and forecast that in Washington Gardensit announced in October.
the standalone company would have earnings-per-
share growth of 11 percent from 2016 through 2020, Walgreens Boots Alliance
“among the best in the group.” Inc. runs more than 13,000

drugstores in 11 countries.

The chain has faced chal-

lenges like government

pressure in the United

States and abroad on

prescription drug pricing,

which hurts the compa-

ny’s profit margin on those

drugs. It has been dealing

with sluggish sales from

store areas outside its phar-

macies.

Foreign exchange rates

also have been a drag

on overseas sales. In the

United States, a mild cold,

cough and flu season

compared to a strong one

last year affected results.

Walgreens has countered

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