Tag / Pfizer

by Frank Maduri

Merger News: P&G Gains Approval for Merck Germany

The formal merger announcement came as no surprise that Procter and Gamble received approval from the E.U. regulatory boards to obtain the Consumer Health business unit of Merck Germany. The acquisition has been in the works and approval was being rumored for about a month leading up to the official approval.

This is the largest acquisition for Procter & Gamble (P&G) since they obtained personal care giant, Gillette, in 2005. The consolidation of this business unit from Merck Germany will expand the reach of P&G into new markets in the European Union, Latin America, and Asia.

In accordance with this announcement today, P&G also formalized the end of their strategic joint venture with TEVA Pharmaceuticals in which they had worked for a number of years together on synergies in the Over The Counter (OTC) products space.
The growth of the OTC area is a core strategic direction for P&G within that industry. This move will allow them to grow that business and expand their existing product lines as well as determining new potential growth pathways within the OTC area.

Merck Germany is not affiliated with the U.S. based pharmaceutical company of the same name, it was essentially spun-off several years ago. The company is a big player in the industry with 900 products distributed in 44 countries. The estimates are for 3,000 employees to transfer from Merck Germany to become P&G employees should the merger gain approval.

The financial experts and Wall Street investment types view this move in a positive way for the retail channels it will impact, but have a more cautious view overall because the merged unit does not have synergy. The deal is not expected to close until the summer of 2019. The ramifications for monopolies in certain industry segments will most certainly be scrutinized by regulators in the European Union.

The potential impact on pricing for consumers on personal care products will be an area of significant concern for the anti-trust regulatory boards in the E.U. relative to this proposed merger. The combined entity will have a larger presence in muscle, joint, and back pain relief which will be a certain area of growth within the demographics of a population that is living longer overall.

Some analysts have speculated that P&G could use the technologies acquired in this transaction to bolster their existing product lines in the U.S. and North America. This is to meet increasingly sophisticated consumer demand for products that deliver more efficacy with no major side effects.

The proposal between P&G and Merck Germany also triggered the news that P&G will end their joint partnership with TEVA Pharmaceuticals. The statement from P&G called the partnership “highly successful” and it did last for seven years.

However, the partnership has always been focused on growing OTC business areas outside of the United States. The bid for Merck Germany creates a redundancy in this regard. The other official statement reads that the goals of the two companies are “no longer closely aligned”. Each side will retain their brands and will look to recalibrate their marketing strategies around those brands on an individual basis.

The merger will have more impact in other regions of the world, especially in Europe and Asia, but the North American consumer impact will be most noticeable in the potential for new or enhanced products in the respiratory, sleep, and cough/cold relief.

The other potential impact of this merger in the U.S. is the potential response by the competitors of P&G in the consumer health industry. How will Unilever, Colgate, or Johnson & Johnson respond to this merger? Pfizer is already moving through the early stages of a complete reorganization to be able to compete more effectively in a few key strategic business areas.

Then, the next area to watch is for the new competitors such as Amazon and Kroger and how they will respond to this move by P&G in the coming months. It is essentially like a big domino that could trigger a whole set of other M&A activity within consumer health.

The potential for P&G to grow in geographic areas where they have limited to no presence currently is an intriguing aspect of this proposed deal. The regulatory decision in the E.U. bears watching and the response by the competitors will shape consumer health/personal care products for the foreseeable future.

(Some background information and statistical info courtesy of Forbes, www.bizjournals.com, Pharmacy Times, and CNBC)

by Frank Maduri

The Great Escape: Pfizer’s Takeover Bid of Allergan

The pharmaceutical giant known as Pfizer is the latest industry giant to pursue the takeover of a smaller competitor in order to relocate their corporate offices overseas to avoid U.S. corporate taxation. In a transaction known as a tax inversion or “inversions” Pfizer is attempting to obtain Allergan, the maker of Botox among other industry leading products, for $150 billion dollars according to many media reports.

 

Allergan is headquartered in Ireland, which has one of the lowest corporate taxation rates in the world (17%) compared to the U.S. which depending on the size of the company is much higher (it is estimated that Pfizer has a taxation rate around 37%). I wrote an article for UPI previously on this topic when Walgreens mulled a shift of their corporate HQ to the UK and then disbanded the plan (http://www.upi.com/Top_News/Analysis/Outside-View/2014/07/25/Economic-patriotism-and-US-corporate-tax-inversion/6741406146830/).

 

This news comes amid the reports that the Department of Treasury is about to announce some changes in the rules for mergers and acquisitions which will make it more difficult for companies to complete these type of inversion transactions. The other political force at play here is the election cycle which the issue of inversions will be a hot topic for the 2016 Presidential campaign trail.

 

Counterpoint

 

The argument made by Pfizer for the defense of this transaction and the justification for it has three different components:

 

  1. Pfizer will still be spending a ton of money in the U.S. on R&D, employee payroll taxes, and other business spending to boost the domestic economy
  2. The change in HQ to Ireland will allow them to more easily access the foreign currency accounts they have for the business they conduct in their overseas units.
  3. The Pfizer financial advisors have made statements to the media that the bigger issue to the antiquated U.S. tax codes and business regulations which create an environment in their words which is “uncompetitive”.

 

In fair balance, they make some valid points but the fact remains that Pfizer has joined the ranks of other large companies in the pharmaceutical space and beyond to move their headquarters out of the United States which really negatively impacts the American economy from several perspectives.

 

First, the government has to make up that gap in the tax revenues they will lose from that corporation (especially one the size of Pfizer) relocating. The next big issue is the loss of the jobs which are generally higher paying and suitable for candidates with a higher level of education. The recent unemployment reports will demonstrate that our domestic economy is lacking those types of higher paying jobs and that millions of people with college and advanced degrees are “underemployed” working several part time jobs to supplement the income of a full time position that does not exist.

 

It is also bad for the public perception of America to have these corporations relocate and that should be the impetus for Congress and the leaders of businesses to get together and forge some type of agreement that works for both sides to avoid these types of inversions in the future. We all have a vested interest in making America remain the best nation on Earth. We have to work together to make that possible in the future.