Press reports indicate that talks between Pfizer (PFE) and Allergan (AGN) are heating up and that a deal is nearing, but simultaneously the U.S. government's rhetoric around the type of "inversion" deal the two pharmaceutical giants are discussing is getting ratcheted up as well. Despite the political noise, an analyst at Citi says he struggles to see what the Treasury can do to stop the drugmakers from combining if they agree to do so.
NEWS: On October 29, Allergan confirmed that it had been approached by Pfizer and is in preliminary friendly talks regarding a potential deal to combine their businesses. Last night, Bloomberg's Cynthia Koons, Ed Hammond and Ruth David reported that Pfizer is nearing an agreement to acquire Allergan for $370 to $380 per share, citing people familiar with the matter. The two companies are aiming to announce a deal as early as Monday, sources told the publication. Also last night, Bloomberg and The Wall Street Journal said that the Treasury Department will release "targeted guidance" later this week meant to "deter and reduce further the economic benefits of corporate inversions," citing a letter from Treasury Secretary Jacob Lew. "It is important to emphasize, however, that Treasury cannot stop inversions without new statutory authority. Unless and until Congress acts, creative accountants and lawyers will continue to find new ways for companies to move their tax residences overseas," added Lew. This morning, CNBC's David Faber reported, citing sources, that a deal will not be announced on Monday, but Pfizer and Allergan are in the "final innings" of merger talks. The deal will consist of all stock and Pfizer is likely to offer 11-plus shares per Allergan share, Faber noted. Allergan CEO Brent Saunders previously told Financial Times that it would be a "short-sighted intervention by politicians if they were to intervene. What has to happen is the U.S. has to create a competitive environment for companies."