Pfizer Chief Executive Ian Read has investors standing behind him even after his second attempt at a huge tax-saving deal collapsed this week.
The U.S. drug maker walked away from a $160 billion merger with Allergan on Wednesday because of new U.S. Treasury rules aimed at blocking the deal’s tax benefits, marking the second major setback for Read in the past two years.
In 2014, Pfizer (PFE) failed in its unsolicited $118 billion bid to buy London-based drugmaker AstraZeneca (AZNCF) after that deal ran into staunch opposition from British politicians.
This time it was the U.S. government that threw up roadblocks to prevent Pfizer from relocating to Ireland, where former U.S. company Allergan (AGN) is now based, with rules that appeared to be aimed specifically at Pfizer/Allergan.
While failure on that scale often puts CEOs in jeopardy, 10 investors and portfolio managers told Reuters that Read still has their support. Read, they said, has a deep reservoir of goodwill after tackling many problems he inherited since taking over in 2010, including re-energizing Pfizer’s faltering research and development operations. In addition, many of them blame the U.S. government, not Read, for the Allergan deal’s demise.
“Read gets an ‘A’ for effort. It was the right move for him to give Allergan a shot,” said Gary Bradshaw, a portfolio manager for the Hodges Funds in Dallas.
OTHER OPTIONS
With annual sales of about $50 billion, Pfizer has other options, including spinning off its large branded generics business. Pfizer had pushed back that decision by two years in announcing the Allergan deal, but said it will now make that call by the end of this year.
Pfizer shares rose 5 percent on Wednesday after the deal was scrapped.
Read is also likely to make other acquisitions to shore up its patent-protected drugs unit before shedding its generics business. Shares of several biotechs seen as possible acquisition targets for Pfizer and Allergan rose on Wednesday, after the deal was called off.
Read announced the Allergan deal last November just days after the U.S. Treasury laid out a previous set of restrictions on so-called tax inversions aimed avoiding U.S. taxes. The deal was structured to avoid those restrictions, but included an unusually small breakup fee should further new tax rules end up scuttling the deal. This week, the U.S. Treasury announced a newer set of restrictions, which is what ended up killing the Allergan merger.
Pfizer had to pay only $150 million, billions less than a standard breakup fee. That took some of the sting out of the deal’s collapse for some shareholders.
Read, a trained accountant, has enjoyed strong support from the Pfizer board after restocking the company’s portfolio of medicines in development and overseeing several important drug approvals.
But it now appears his legacy will not include slashing the company’s tax bill, a passion for Read who has said U.S. corporate taxes left him disadvantaged when competing with overseas rivals. Pfizer declined requests for comment from Read.
NOT THE ‘FALL GUY’
Many of the investors Reuters spoke with said the U.S. government was responsible for the Allergan deal’s collapse, giving Read a pass.
Oliver Marti, portfolio manager at Columbus Circle Investors, which has been a Pfizer investor, said Read “has made some very smart decisions” and the deal to buy Botox maker Allergan was one of them.
“You work within the rules as best you can to win the game. Unfortunately, the Treasury has abused its authority and made up its own rules,” Marti said.
“Read shouldn’t be the fall guy,” agreed Tony Scherrer, director of research at Smead Capital Management, a longtime holder of Pfizer shares.
The Treasury and many U.S. politicians, including presidential candidates, have argued that U.S. companies should not be allowed to strike deals to avoid paying taxes.
Allergan CEO Brent Saunders said in a telephone interview on Wednesday that the companies each had contingency plans in place if Treasury changed the rules again. “While I’m sure Ian is personally disappointed, he hasn’t skipped a beat and is absolutely focused on Pfizer and its independent future.”
Asked if there was anything he could do to cheer up Read after his quest for lower taxes evaporated, Saunders said: “His stock price is up. He doesn’t need cheering.”
