Aswath Damodaran – Botox, Viagra or Placebo?: The Pfizer Allergan Deal


Aswath Damodaran Botox, Viagra or Placebo?: The Pfizer Allergan Deal

 

Published on Nov 18, 2015

Pfizer is planning to buy Allergan in a mega-deal, motivated by two factors: the desire to buy growth (which it sorely lacks) and move out of US tax jurisdiction. In this webcast, I look at both but spend most of my time assessing the value effect of the tax code
Slides: http://www.stern.nyu.edu/~adamodar/pd…
Spreadsheet: http://www.stern.nyu.edu/~adamodar/pc…
Blog Post: http://aswathdamodaran.blogspot.com/2…

pfizer-merger

Comment (1)

  • Atul Sharma

    Dear Prof Thanks for interesting perspective to merger scenario of Pfizer with Allergan; there are few things which I wished your views upon – 1) the levered beta is high 0.85; is it due to high risk R&D 2) the important aspect will be post merger scenario – assuming that Pfizer moves ahead with merger given inversion & medium term growth prospects – Will Allergan’s sale $13 bn at ~50% translate to sustained growth for combined entity; also Allergan current portfolio & for future growth drivers are best designed for base at which Allergan is right now; there is a huge difference of Revenues of 2 entities & so are customers hence further reducing value of synergies upon integration; the growth driver in Pharma at high base of $49bn are way different for the 1s at $13 bn.

    Although these are subjective aspects but makes lot of impact on decision making; the combined entity will be earnings accretive for short to mid term (thanx to inversion); but in long run; if the Business units are carved out depending on the strategic portfolios growth drivers; & there on take up productive R&D (as planned by Pfizer) post Split in 3 entities, it will be a matter of strategic structuring, The anticipated revenues of newly carved out entities since will have lower base, more agile/lean structure & will be able re-chisel their growth drivers more finely;

    There are good number of examples like J&J Roche Novartis GSK (did strategic restructuring of portfolio) who in recent past have reviewed their investments in R&D and now progressing aggressively in re-defined area of future growth; some of them are even investing now anticipating fall in revenues of next 10 yrs (latest Cancer R&D).

    Pharma in recent past has been very demanding in terms of orchestrating the growth & hope you will agree that in past 10 yrs Pharma market due to the inherent nature of medium term PLC (off patent fall in revenues/increasing generics usage) & high investment in R&D with staggered/uncertain productivity has been in stochastic phase; but with advent of Biotech products & Immuno Onco, I foresee & believe that future will be more deterministic & will have archetypes for consistent growth drivers

    November 20, 2015 at 1:43 am

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