Allergan (NYSE: AGN)
Allergan is having an incredibly hard day in the market today, and for good reason. The company is the center of actions made by the U.S. Treasury as well as the IRS. Today, we’ll talk about those actions, why they are hitting AGN so hard, and what we can expect to see moving forward…
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US Treasury & IRS Make Moves That Hurt AGN
As mentioned above, Allergan is having an incredibly rough day in the market today, thanks to moves made by the United States Treasury as well as the IRS. These agencies have issued temporary restrictions as well as proposed regulations to further reduce the benefit of and limit the number of corporate tax inversions. This is a major hit to AGN as the company is the product of several acquisitions, and ultimately, tax inversions reduce costs in a big way for the company. However, the biggest effect of this action is likely an issue with the agreement between AGN and Pfizer (NYSE: PFE). The truth is that, by limiting inversions, the merger between AGN and PFE will likely have incredibly high costs. Recently, BMO Capital analyst Alex Arfaei gave his opinion with regard to this issue, and he said it much better than I could:
“Under current law, an inverted company is subject to potential adverse tax consequences if the shareholders of the former U.S. parent (in this case current PFE shareholders) end up owning at least 60% of the shares of the new foreign parent. Therefore, we believe that the tax benefits of the PFE + AGN merger will likely be significantly diminished based on the Treasury’s recent actions. If Pfizer is not able to invert and repatriate its ex-U.S. cash in a tax efficient manner to repurchase a significant portion of the 4.7Bn new shares it will be issuing to buy AGN, then we doubt that the current deal structure, and implied valuation for AGN, would make sense for PFE shareholders. If Pfizer still chooses to pursue Allergan for other strategic reasons, e.g. to setup a split, our initial view is that the deal structure needs to be significantly revised.”
How The Market Reacted To The News
We all know that the news moves the market, and unfortunately, the news that was released late yesterday was incredibly bad for AGN. As a result, we’re seeing a big reaction in the market today. Currently (10:11), the stock is trading at $232.50 per share after a loss of $45.05 per share or 16.23% thus far today.
What We Can Expect To See Moving Forward
Moving forward, things are incredibly uncertain at the moment. In the short term, Allergan is likely to see some struggles as the company’s deal with Pfizer is likely to go down the tubes. Even if it ends up that the deal will move forward, chances are that we will see big changes, and the pie won’t be as sweet for the company. As a result, we’re likely to see further declines in the short run. However, in the long run, I have an incredibly bullish opinion of what we can expect to see from AGN. The reality is that the company has a long line of incredible products, not to mention the prospective products it is working on. With strong products, strong management, a strong team, and a decent amount of money to keep the ball rolling, I’m expecting to see long-run gains out of AGN however this plays out.
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What Do You Think?
Where do you think AGN is headed and why? Let us know your opinion in the comments below!
[Image Courtesy of Wikipedia]