Pfizer in takeover talks with Allergan for biggest merger of year

Trading in shares of Botox-maker Allerganand druggiant Pfizer has been suspended after Allerganconfirmedthat it has been approached by Pfizer about a possible merger.

A hook-up between the twowould create a massive drug development company with treatments for a wide range of conditions ranging from high cholesterol to erectile dysfunction.

Analysts speculated that Pfizer would have to pay $390 to $400per share for Allergan, making the deal worth at least $153 billion US, the biggest merger in a year that has seen several big mergers in pharmaceuticals.

Dublin-based Allergan PLC said Thursday that the two companies are in "preliminary friendly discussions" adding that talks are at an early stage and may not yield an agreement.

Tax implications

Allergan's Irish domicile might be attractive to Pfizer as a low-tax jurisdiction. Pfizer CEO Ian Read says his company is at a disadvantage among pharmaceuticals firms in paying U.S. corporate tax rates.

So-called tax inversion deals allow a company to shift profits to the lowest-tax jurisdiction in a merger.Pfizer's effective tax rate is25 per cent, while Allergan's is 15 per cent. U.S. legislators have been critical of these sorts of deals, calling them "unpatriotic."

The drugindustry has seen a string of mergers in the past two years, as companies seek to grow in a competitive environment for pharmaceuticals.British-based Actavisagreed to merge into Allergan earlier this year.

Allerganmakes treatments forAlzheimer's, depression, chronic dry eye, enlarged prostate, overactive bladder, cystic fibrosis, retinal disease, acne and acute bacterial infections.

The company rejected a $46-billion takeover offer from Quebec-based Valeant earlier this year and has since streamlined operations. It also divested its generics operation to Israel-based Teva.

Pfizer, maker of Viagra and Celebrex, also makes high-profile drugs such as cholesterol treatmentLipitor, pain treatmentLyrica and antibioticZithromax. If the merger goes through, Pfizer, currently the world's second biggest drugs maker after Novartis, would become the biggest.

Pfizer has been hurt by a wave of generic versions of one-time blockbuster drugs like cholesterol fighter Lipitor entering the market, reducing company sales by a total of $28 billion from 2010 through next year. It has a history of making large acquisitions to boost revenue, gain promising drugs in development and cut costs.

It's done three sizeable deals since 2000, acquiring Warner-Lambert and Pharmacia before paying a whopping $68 billion for Wyeth in 2009.