Pfizer Could Receive Tax Benefits
While the potential tax benefits of U.S.-based Pfizer buying U.K.-based AstraZeneca are and will be fuzzy until the details of any deal are finalized, there are two major tax considerations that make the potential acquisition compelling to anyone who owns a stake in Pfizer stock.
The first tax benefit is the avoidance of a taxable repatriation of cash earned by Pfizer’s overseas subsidiaries. Although using that otherwise-idle cash in this manner only delays repatriation-taxation rather than circumventing it, at least it makes productive use of that $69 billion before the hit is taken. The alternative is to tax it heavily, now, should it be passed along as a Pfizer stock dividend.
The other tax upside to an acquisition of AstraZeneca is that it could somewhat-seamlessly allow Pfizer to move the corporation’s home to the United Kingdom, where it would feel a slightly smaller tax pinch.
AstraZeneca is Bargain-Priced
While AstraZeneca would bring plenty of problems with it, the deal may be too good for Pfizer to pass up, warts and all.
As it stands right now, AZN stock is valued at an affordable forward-looking P/E of 16.4. Yes, AstraZeneca will see revenue deteriorate on the heels of patent expirations from Crestor, Seroquel, Nexium, and other key drugs. The market may have overestimated the impact of the company’s tumble over the patent cliff, however, in light of a deep and wide pipeline as well as a few off-the radar drugs that could end up selling surprisingly well. One of those drugs is a diabetes treatment — an area that has become quite important to AstraZeneca in the last couple of years.
The point being, AstraZeneca may be down, but it’s certainly not out, even though the market is largely pricing in the worst-case scenario.
Bottom Line for Pfizer Stock
It would likely take all of the above reasons to prompt Pfizer to actually pull the trigger on the $100-billion deal. While it’s not a mismatch per se, there’s not a lot of synergy — beyond the usual cost savings that come with eliminating redundancies — to be realized here on the R&D front.
Pfizer stock owners may be better off if the company were to hunt and peck for some highly-compelling, one-trick-pony biotechs that could add a blockbuster or two to the pipeline for relatively little money. Indeed, that may be why Pfizer backed away from the table a few months ago. It’s unlikely anything has changed in the meantime, except for the surge in the price of AZN stock, which just made an already-lackluster deal even less attractive than before.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.