Pharmaceutical companies Pfizer and Allergan (AGN) confirmed Monday that they have agreed to merge in an inversion deal that will reincorporate the combined firm in Dublin, Ireland, helping the company lower its effective tax rate from 25% to between 17% to 18%. Some experts think Pfizer’s eventual tax rate could be significantly lower.
But lower taxes aren’t the only consequence of moving headquarters out of the United States. Being located in America has long been a criterion for inclusion in indices like the S&P 500, the Dow Jones Industrial Average, and Fortune’s own Fortune 500. Here’s how Pfizer’s move will affect its places on these American institutions.
S&P 500: The S&P 500 is the list Pfizer (PFE) executives would likely be most afraid of leaving. Because this list is relied on by index investors who want to get cheap exposure to the broad stock market, losing a spot in the S&P 500 could mean fewer potential buyers of Pfizer stock. As Fortune explained in its 2014 exposé on corporate inversions, S&P used to require that a company be domiciled in the U.S. in order to be included in the index:
Because the new Pfizer isn’t moving assets abroad as part of the deal, and the majority of the company’s revenue will come from the U.S., it should be able to keep it’s place on the S&P 500.
Dow Jones Industrial Average: The merger will likely get Pfizer tossed from the Dow. Last year, the committee charged with overseeing the Dow Jones Industrial Average changed the language to stress that companies must be domiciled in the United States to do be included among the 30 companies that comprise this famous index. “Considering this is one of the oldest indices, and always considered to be a purely U.S. index, we wanted to maintain that legacy,” David Carlson, director of U.S. and Canadian equity indexes at S&P Dow Jones Indices, told the Wall Street Journal last year.
A spokesperson from S&P Dow Jones Indices declined to comment.
Fortune 500: Here, Pfizer is also out of luck. Fortune requires that members of the Fortune 500 list be domiciled in the United States. So if the Pfizer deal goes through, Fortune can confirm that the drug company will be off our list, just as Medtronic and others were before it. It will be eligible, however, for inclusion on the Fortune Global 500.