The reason Pfizer doesn't have to care what politicians say about its $160 billion merger
The deal will allow Pfizer to move its domicile from the US to Ireland, where its tax bill will fall drastically. The politicians see this expatriation as a slap in the face.
But as much as they huff and puff, there's not much US Sen. Bernie Sanders (I-Vermont), Hillary Clinton, or Donald Trump can do to stop the deal. Killing it on the basis of the tax dodge will probably take an act of Congress, and that's not forthcoming.
The companies seem to be pretty confident of this. They agreed to pay only a tiny breakup fee in the event that a change in laws causes them to part ways.
These kinds of tax-driven deals, called inversions, have to meet a number of technical requirements to get past the US Treasury Department. It's critical that the target company's shareholders own more than 40% of the combined company.
Allergan shareholders will own about 44% of the new company, and Pfizer and Allergan took steps on Monday to make sure investors knew this. Consider this tweet by Allergan CEO Brent Saunders:
Confident parting agreements
If a deal between Pfizer and Allergan doesn't go through because shareholders of one company object, or a "superior proposal" appears, the companies have agreed to pay up to a $3.5 billion breakup fee.
But, if the deal breaks because of a change in the law, that termination fee falls to just $400 million.
Here's the text of the SEC form (emphasis ours):
SEC.govScreenshot of the Pfizer-Allergan filing.
That lower breakup fee is a reflection of how sure Pfizer and Allergan are about the deal, Gordon said.
"If Allergan was worried about the deal not happening because of a change in law, it would've demanded more money on the table," he said.
Of course, such confidence has failed companies before. Just over a year ago, AbbVie called off its inversion deal with Shire after Treasury announced executive moves to attempt to curb inversions. At the time, the Obama administration said it was acting unilaterally because it could no longer wait for Congress to address the growing trend legislatively.
Like Pfizer an Allergan are now, AbbVie was also confident it wouldn't have to walk away. When it walked, AbbVie had to pay Shire a $1.64 billion breakup fee.