$46 billion per day: why are uniting the world’s pharmaceutical giants

Thursday, April 28, it became known at once about three mergers and acquisitions (M&A) in the global pharmaceutical market. Their total amount in case of success will be nearly $46 billion According to The Financial Times, in one day the volume of deals in the pharmaceutical market increased by more than half since the beginning of the year in this market were announced agreements totaling over $120 billion.

The three pillars

The largest deal made the American company Abbott Laboratories, announced in principle agreement for the purchase of American St. Jude Medical, specializing in the creation of various implants and medical devices.

In terms of sales, Abbott and St. Jude is first and second place in the global market of drugs for the treatment of cardiovascular diseases. The volume of this market is estimated at $30 billion a year, the total revenue of these two companies is $8.7 billion.

The amount of the transaction in cash and securities amount to $25 billion. in addition, Abbott is ready to take on or to refinance net debt St. Jude in the amount of about $5.7 billion Total amount of the transaction in this case will exceed $30 billion is expected to close at the end of 2016.

At the end of the trading day on April 28 on the new York stock exchange quotes Abbott fell by almost 8%, but the St shares. Jude has risen by more than 25%.

On the same day the French group Sanofi announced plans to buy California-based manufacturer of cancer drugs Medivation. While that Sanofi only sent the Americans a letter offering to buy their business based on the price of $52.5 per share, or $9.3 billion for the entire company.

At the time of posting the offer Sanofi only slightly exceeded the market value of securities of Medivation ($52,05). But within the same trading day the shares of the American firms on the NASDAQ rose 8%, to $56.2 per.

FT analysts believe Sanofi will have to raise its offer: in the past month, several major pharmaceutical companies interested in buying Medivation (e.g., AstraZeneca and Roche).

Finally, on Thursday, the Corporation AbbVie announced it has agreed to acquire a private company Stemcentrx for $5.8 billion in cash and stock. Like Medivation, Stemcentrx is based in California and is engaged primarily in the development of drugs to fight cancer.

The group AbbVie was formed in January 2013 as a result of separation of Abbott into two independent public firms operating in the segments of medical devices and pharmacology. Now a company with $23 billion in revenue is planning to develop a highly promising direction of medicines on the market. In particular, AbbVie believes that a “multibillion-dollar” potential of an experimental drug Stemcentrx of lung cancer called Rova-T.

Obama Rules

The announced deal could be the beginning of a new wave of mergers and acquisitions in the pharmaceutical industry, experts say FT. “Instability in the stock market led to a brief pause on the M&A market, says JP Morgan analyst Jeff Stout. — But the markets are now stabilized, and I expect that the number of such deals and offers. According to experts, the pharmaceutical market still has a lot of large corporations with stable financial indicators, which are ways to continue extensive development.

The first major deal in the pharmaceutical market this year fell in early April. The American Corporation Pfizer abandoned the program merge with an Irish company Allergan, canceling a deal worth $160 billion.

About their intentions to merge the company announced on 23 November, planning to close the deal in about six months. Pfizer annual revenue is $49 billion, while Allergan is about $1 billion, but the headquarters of the new company Pfizer plc was made to move to Ireland.

The island nation is known as one of the favorite “tax havens” of us corporations, so this merger has aroused the interest of financial authorities of the United States. According to Reuters, the transfer of the headquarters of Pfizer in Ireland would allow the group to save on taxes up to $1 billion a year.

In the end, on 4 April, the US Treasury introduced new rules in respect of such transactions, which he calls “inversion”. At the suggestion of Barack Obama, the Agency proposed multi-stage scheme to combat tax evasion. In particular, when combined American firm with a foreign player, the new company undertakes to pay taxes in the US, if its American business accounts for more than 80% of the total cost. Moreover, for foreign companies the calculation of the value will not count towards M&A transactions over the past three years.

Under this rule, the share of assets of Allergan in the combined company would be below 20%. Pfizer’s market capitalization is $202 billion, while Allergan — $86 billion (in early April, prior to the introduction of the new rules, it exceeded $110 billion). The decision of the U.S. Treasury excluded from the calculation of the recent acquisition of Allergan, which allowed the regulator to assume that the capitalization of the company is $30 billion.

Three days after the introduction of these restrictions Pfizer has terminated a deal with Allergan, paying a penalty of $150 million media considered it a victory of the US administration in dealing with corporations wishing to optimize their tax schemes.