Allergan Still Undervalued as Likelihood of Pfizer Deal Fades
New rules from the U.S. Treasury may put a damper on the Pfizer merger, but Allergan remains an attractively priced wide-moat company nonetheless.
The U.S. Department of Treasury's updated framework for tax inversions reduces the likelihood of
The updated framework both limits the ability for Pfizer to invert with Allergan and likely hurts the tax benefit from inverting if still possible. The new guidance limits Allergan's market value by only allowing previously acquired U.S. firms from over three years ago to be counted in the Allergan valuation for inversion thresholds, which cuts off the July 2014 Forest acquisition (23% of Allergan's market capitalization) and the March 2015 Allergan acquisition by Actavis (renamed Allergan, 32% of Allergan's market capitalization). As a result, Pfizer would now not meet the threshold of owning less than 60% of the merged Pfizer-Allergan. Also, the updated guidance reduces the ability of intercompany loans from high-tax jurisdictions to low-tax areas, which probably reduces the ability of Pfizer to gain the expected 700-800 basis points of tax reduction expected from the merger.
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