Free «Pfizer and Allergan Deal» Essay Paper

The merger between Pfizer and Allergan is quite a disputable issue. The company owners view it as a positive step toward development and avoiding high taxes through a changed headquarters location. However, American government cannot regard it a positive phenomenon due to the losses it will cause for the State Treasury. Nevertheless, in terms of industry dynamics, competition and future perspectives, the $160 billion merger of Pfizer and Allergan is a positive step for the company even though it is claimed to be not patriotic. Therefore, the aim of this paper is to prove that this merger is a solid background for the creation of innovative global business regardless of its disadvantages.

Deal Structure

According to the terms and conditions of a deal, Pfizer will merge with Allergan under the common enterprise name “Pfizer Plc.” The transaction will be structured as a reverse merger. It means that the wholly owned subsidiary of Allergan parent company will merge with Pfizer. After transaction closes, it will have a status of the combined entity parent company. A deal with Allergan enables Pfizer to achieve an inversion easily (Benson, 2015). The headquarters of a new entity will be re-located to Dublin.  The boards of directors will comprise of eleven members from Pfizer and four from Allergan. Overall, such deal structure is not quite traditional for inversion and thus, the degree of pressure from the government is unknown. A number of discussions have already appeared around the issue. Regardless of these problems, a deal will unify two global companies and its structure has to be very effective for the future entity coordination. Despite company`s location in different parts of the world, such structure will ensure efficient communication on an international level.

Possible Challenges

There are some challenges that the combined firm can face. One of them is the post-merger integration challenge. Both Allergan and Pfizer are too big and have several product lines and locations. The departments` integration will be extremely difficult because of the great number of employees from both sides. The next challenge lies in the deal structure. While the global operations headquarters will be situated in New York, the headquarters and principal executives` offices will be located in Dublin (Benson, 2015). Therefore, the headquarters will have to move from the USA to Ireland. Moreover, such deal will have a great influence on the US tax collection leading to government’s resistance. The next challenge is increased anti-trust regulations, because both global pharmaceutical companies have different locations. Therefore, this deal will be regulated by both European and American anti-trust laws (Benson, 2015). Overall, all these challenges are real and even predictable for the combined entity due to its global level, specific structure and location in different parts of the world. However, this merger has to help the new company to deal with them effectively due to the greater strengths and abilities. Moreover, challenges do not outweigh the benefits that are associated with this deal.

Industry Dynamics

Pfizer and Allergan are among the biggest international pharmacy companies. However, such companies as Roche, Abbvie, Baxter, Abbot and some others also have strong positions and a possibility to compete with many Pfizer’s products (Gautam & Pan, 2015). Hence, when analysing the positive aspects of their merger, it is necessary to consider the dynamics common for the pharmaceutical industry during the last decades. Gautam & Pan (2015) report that the recent years are marked with exciting breakthroughs in biomedical sciences. However, the barriers that remain significant for the pharmaceutical industry players include pricing, reimbursement, patent expirations and fierce market competition (Gautam & Pan, 2015). It is obvious that bigger companies can overcome these barriers more easily. Moreover, since Pfizer and Allergan are the unique producers of Viagra and Botox cosmetics their merger will unite such famous brands as Lipitor, ChapStick, Advil, Centrum, ThermaCare, Xanax, Namenda, Juvederm and Restasis under the same producer name making the new company the biggest drug maker worldwide. In such a way, Pfizer will ensure constant revenue growth. While the main trends in modern pharmaceutical industry shift toward lean manufacturing, hubs to hotspots, primary to specialty and West to East, one can conclude that the new company will gain much. Pfizer had already merged with other companies like Warner Lambert in 2000, Phamacia in 2003 and Wyeth in 2009 (Gautam & Pan, 2015). With this in mind, it is evident that such a rich experience of acquiring other pharmaceutical companies has contributed to company’s strong position including in its specialization the animal health units, nutrition business and Hospira for biosimilar products (Gautam & Pan, 2015). Pfizer’s choices have brought the company to the new level of business expansion and innovative developments. Hence, the merger is the next step toward company’s growth.

Strategy

The company promises to produce more medicines and therapies to the patients (Mullard, 2016). Hence, company’s innovation and new research departments should become quite beneficial for the patients worldwide. Previously, companies specialized in different areas with Pfizer being known for the production of drugs for oncology disease, immune system improvement and inflammations, cardiovascular diseases, metabolism violations, neuroscience researches, rare disease investigation and vaccines. Now, its sphere of medical expertise will extend to aesthetics, dermatology, eye care, women's health and other spheres without a necessity to invent new drugs. The merger will ensure technological improvement and new direction development.

Referring to the strategic choices of Pfizer, they have influenced the triple-A rating of the company in a negative way. Researchers prove that such rating decrease can be caused by the risks associated with the changed attitudes towards the company and its finances. However, expected revenues of Pfizer in the first three years are $2 billion, while its further target is 15% revenue growth till 2020 (Benson, 2015).

Disadvantages

Despite the fact that a number of positive consequences and corporation’s profitability will definitely increase providing a successful business establishment, not all aspects of a merger can be considered as benefits. Companies’ budgets will be combined under the common goal of research and development and new medicine production will take some time. Therefore, this will be hardly considered the benefit for the waiting patients and organizational structure (Mullard, 2016). Nevertheless, the period of creating the new drugs in any other company will not demand less time. Moreover, the merger implies unification of the experienced researchers from both companies.

There is also another drawback of Pfizer’s direction. While the managers will be busy with departments’ integration, personal unification, development of priorities and mission review, the company will not start new projects and close previous researches. However, this disadvantage can be viewed from another perspective. Considering previous merging experiences of the company, it is very likely to tackle the changes effectively.

Some workers including scientists will be fired leading to the productivity decrease, because the employees will be worried about their positions and own security and thus, will not concentrate on their obligations. Nevertheless, merged company will have more than forty development and research centres and more than seventy-five manufacturing sites around the world (Benson, 2015). Moreover, due to increased resources, the new entity will improve its production capacity leading to greater volumes of production and increased number of employees. Around 110,000 employees will work for Pfizer Plc. worldwide (Benson, 2015). Such number will help to decrease the unemployment level. Also, transformed entity will have more abilities to increase its research and development that will strengthen company’s position on the pharmaceutical market (Benson, 2015). 

Finally, American State Treasury will suffer a considerable loss because of such event. From the perspective of American tax policies, this merger is a good opportunity to reconsider the “U.S. policy options in regard to inversions” (Avi-Yonah & Marian, 2015). Review of such policies can be an effective step toward decreasing the financial burden of other companies.

Conclusion

Overall, it is important to understand that big mergers help to deal with business problems transferring them into benefits. Given analysis aimed at providing a deeper insight on the Pfizer-Allergan merger in attempt to present it as a positive event in the pharmaceutical industry. Becoming a strong competitor on the market, providing more medicines and therapies to the patients and ensuring a great number of working places present a good motivation for the competitors and a profitable deal for the company owners. Even though the merger has some disadvantages for American economy, it has more benefits than weaknesses on a global level.