Allergan (AGN), Pfizer Confirm $160 Billion Merger Deal, Stocks Fall, Jim Cramer's Take - TheStreet

NEW YORK (TheStreet) -- Allergan (AGN) - Get Report and Pfizer (PFE) announced earlier this morning that they will merge in a deal worth about $160 billion, creating the world's biggest drugmaker. 

Pfizer will buy Allergan for $363.63 a share. 

In Monday's pre-market trading session, Allergan shares are retreating 0.79% to $310 and Pfizer shares are tumbling 2.3% to $31.44.

Botox-maker Allergan shareholders will get 11.3 shares of the combined company for each of their Allergan shares, and Pfizer stockholders will receive one share of the combined company for each of their Pfizer shares.

The transaction is expected to be completed in the second half of 2016.

TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio commented on the deal in an article titled, 'Hold on to Your Allergan Shares,' published today saying: "It's time to take a deep breath. After what seems like a lifetime of Allergan stock trading up, down, and sideways -- due to merger speculation, unwarranted linkage with Valeant Pharmaceuticals (VRX) and other broader biotech issues -- we finally have a definitive agreement, no conjecture required. While the deal is still subject to various approvals, of course, we do not expect there to be any issues blocking the close."

"At this time, we are recommending that subscribers hold on to their shares of Allergan and ride out the ample opportunities this combined company will provide," Cramer added.

Through this deal, structured as a tax inversion, Pfizer will have the opportunity to lower its corporate tax rate. The New York-based drug company will relocate to Ireland, where Allergan is based, in order to trim its U.S. tax burden. 

"The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better," CEO Brent Saunders stated. 

Separately, TheStreet Ratings team rates ALLERGAN PLC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate ALLERGAN PLC (AGN) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AGN's very impressive revenue growth greatly exceeded the industry average of 3.7%. Since the same quarter one year prior, revenues leaped by 90.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • ALLERGAN PLC has improved earnings per share by 46.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ALLERGAN PLC reported poor results of -$8.65 versus -$5.43 in the prior year. This year, the market expects an improvement in earnings ($15.41 versus -$8.65).
  • The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that AGN's debt-to-equity ratio is low, the quick ratio, which is currently 0.52, displays a potential problem in covering short-term cash needs.
  • Compared to other companies in the Pharmaceuticals industry and the overall market, ALLERGAN PLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: AGN