Wry & Dry

Would you like some Botox with your Viagra?

W&D excitedly notes that the company that makes Viagra (Pfizer) is acquiring the company that makes Botox (Allergan).  The CEO of Pfizer made an expansive announcement that the record $160 billion takeover has two objectives: (i) for the merged company to create one stop-shopping for men who never want to grow old; and (ii) to develop a female equivalent of Viagra and that would also provide the benefits of Botox within the one product.  The new product has been tentatively called Viabox. 

Below is the expression of someone on Botox reacting to the news of the $160 billion deal.  

Botox

This is also her expression reacting to anything else.

To be honest, W&D made that up.  The deal (a) is actually the other way around: Allergan is taking over Pfizer, although Pfizer is ten times the size of Allergan; and (b) is all about tax evasion.

Whaaat!  Well, it really is called 'tax inversion'.  The United States taxes US-based companies on all their profits regardless of where in the world the profits were earned. Companies get to deduct the company tax they pay to foreign governments for their foreign profits, but since the US has a higher company tax rate (25.5% for Pfizer) than most foreign countries, that generally leaves a residual tax bill.

So if a US-based company can become a subsidiary of a company headquartered in a low-tax jurisdiction (let's randomly pick a country... hmmm... Ireland), then it can avoid paying a bunch of taxes on sales made in foreign countries.  Allergan, wait for it, is an Irish company, and its effective tax rate is 4.8%.  So Pfizer's plan is to shred its US company tax bill, by at least $21 billion in future (according to the Financial Times).

But wait.  There's more.  That's because a huge share of the value of a pharmaceutical company is tied up with its drug patents. By assigning ownership of the patent to a subsidiary located in a low-tax jurisdiction (Ireland) and then having subsidiaries in higher-tax jurisdictions (USA) license the patent from it, a pharmaceutical company can ensure that profits accumulate in low-tax countries even if sales happen in high-tax countries.

It's a lot easier to ship a patent overseas than a cement plant. 

The lawyers that dreamed this up are earning squillions, as are the investment bankers who are executing it. 

What W&D really wanted was for Pfizer to merge with Moët & Chandon...[1]