(This article was updated at 10:45 a.m. ET on Monday, Nov. 23.)
The boards of Pfizer and Ireland's Allergan on Sunday approved a merger deal worth $160 billion.
The deal would create the largest drugmaker by sales. It combines cash and stock and is expected to close in the second half of next year, pending customary approval.
Pfizer, based in New York, would gain a lower tax rate by moving its business to Ireland through the transaction, a strategy known as inversion that has grown more common among pharmaceutical companies. A prior attempt by Pfizer to strike an inversion deal failed when the company could not acquire Astra-Zeneca, which is based in London.
In an effort to take advantage of that lower tax rate, Pfizer and Allergan will be combined under Allergan, which will be renamed “Pfizer PLC.” Pfizer expects the combined firm would drop its current tax rate of 25% to an adjusted rate between 17% and 18%.
The tax-related benefits provoked a response from Washington where the Treasury Department has introduced new rules to make similar inversions less attractive.
The two Democratic presidential candidates Hillary Rodham Clinton and Bernie Sanders, bashed the deal.
Clinton said it would leave "U.S. taxpayers holding the bag" and plans to propose steps to prevent inversions.
Sanders says the merger would be a "disaster" for U.S. consumers paying high prescription drug costs. He says the Obama administration should exercise its authority to stop the merger. Martin O'Malley calls the merger "fundamentally unfair."
But, perhaps trying to deflect tax concerns, Pfizer and Allergan officials emphasized in a conference call that 85% of Allergan's business is in North America.
"We appreciate that the issues raised are important for the future competitors of the country and that many good minds are looking to reform the system," but the two parties are moving forward with the transaction," said Pfizer CEO Ian Read.
Allergan will benefit from Pfizer's global scale for growth, bringing it into 70 new markets, and the Irish company brings to Pfizer innovative therapies in areas like allergies, obstetrics, gastrointestinal and dermatology.
"We're not doing it simply as a tax transaction," Read said. "We're doing this because of the strategic importance of franchises, revenue growth we think we can get both in the U.S. and internationally, and the importance of combining the research approaches."
Pfizer would pay 11.3 shares per Allergan share. Pfizer shareholders will own 56% of the combined company.
On Monday, Read, who will remain as the leader of the combined company, said the deal would give Pfizer greater financial flexibility to innovate new treatments. He also said that it would allow the company to continue to invest in the United States while giving it a more "competitive footing within the industry."
Allergan's CEO Brent Saunders, who will become President and COO after the merger, likewise emphasized innovation in his statement regarding the deal.
"Joining forces with Pfizer matches...our robust research and development with Pfizer's leading innovative and established businesses, vast global footprint and strength in discovery and development research to create a new biopharma leader,” he said.
The Pfizer/Allergan merger would boast a combined pipeline of more than 100 mid-to-late stage programs in development, according to the release.
Read also noted that both companies have a history of significant mergers, with Pfizer's Wyeth and Hospira deals and Allergan's Actavis and Forest Labs acquisitions.
Shares of the combined company will be listed on the New York Stock Exchange and trade under the “PFE” ticker, according to a press release.
Pfizer also listed as a condition of closing, Allergan's pending divestiture of its generics business to Teva Pharmaceuticals. Allergan expects that will close in the first quarter of 2016.
Pfizer and Allergan together have more than $60 billion in sales. Executives said there is a possibility of splitting the company into two businesses to optimize revenue; the company would meet requirements to do so by 2019, said Frank D'Amelio, Pfizer's CFO.
