HONG KONG • Pfizer may be getting closer to breaking up and moving out.
The largest United States drugmaker and Ireland-based Allergan are considering a merger, according to the Wall Street Journal (WSJ).
A deal would give Pfizer a way to move to a low-tax legal address abroad and gain valuable speciality drugs such as Allergan's Botox anti-wrinkle treatment.
It would also help Pfizer become big enough to split up into two new companies, one focused on older drugs at the end of their life-cycles, and the other focused on the faster-growing business of new brand-name drugs.
The Journal said the talks are early and could still fall apart.
The report comes two days after Pfizer chief executive officer Ian Read said he was looking at potential deals, as the company often does, and was ready to be "bold".
"This management team is not afraid of taking bold steps, and we're looking at opportunities," he said on a conference call on Tuesday, before the report of talks with Allergan. "When we make our decision as to what is the best way of enhancing value, we will move."
A deal could pave the way for more than just a spin-off. Purchasing Allergan, which has its legal domicile in Dublin and a market cap of US$113 billion (S$159 billion), may also let Pfizer relocate outside the US for tax purposes through what is known as a tax inversion.
The move requires a large foreign target in order to clear US tax rules, and was one of the reasons Pfizer sought to acquire AstraZeneca last year, before withdrawing its bid.
Mr Read has said he is looking for three things in any major deal. "I expressed a preference for any deal that creates greater shareholder value," he said on Tuesday.
Allergan is one of the few targets that fit Pfizer's aspirations, Credit Suisse analysts wrote in a note to investors yesterday. Recent comments from Pfizer's management on earnings calls have elevated expectations of Pfizer "going bold and trying to complete a tax inversion-based deal", the analysts wrote.
Allergan yesterday confirmed it was in preliminary talks with Pfizer, but said there was no certainty the talks would lead to a deal. It did not discuss the terms that might lead to a tie-up.
Buying Allergan would give Pfizer drugs to add to its speciality drug unit. Pfizer earlier this year bought Hospira, which makes generic injectable drugs and devices to deliver them in, for about US$17 billion.
Last year, Pfizer was said to have approached what is now Allergan about a takeover. At the time, the company - which then went by the name Actavis - had a market valuation of about US$64 billion.
"There are very few deals on the market, so Pfizer is trying to fill this need for a deal and, once this behemoth is created, then it will probably carve its business out into speciality pharma and generic pharma," said Mr Jayant Singh, director of the healthcare practice at Frost & Sullivan in New Delhi. BLOOMBERG