When it comes to the biotechnology market, acquisition rumors are nothing new. In fact, we hear about them quite often. The latest in the line of biotechnology acquisition rumors is the idea that Pfizer is likely to acquire Allergan. Today, we’ll discuss the likelihood of this acquisition actually coming to fruition and what we can expect moving forward.
If This Happens It Will Be Huge!!!
We see biotech acquisitions all the time. However, few and far between are as big as an acquisition of Allergan. The reality is that Allergan is a massive company. In fact, according to NASDAQ, the company has a market capitalization of $109.48 billion. Given that any acquisition comes at a premium, Pfizer would have to pay quite a bit more if they really are planning on an acquisition. Let’s say that the deal came to a premium of 20%, which in this industry would be incredibly modest, Pfizer would have to unload $131.376 billion for the purchase of the company. If this deal was to come to fruition, it would be guaranteed to be a cash/stock split. After all, at the moment, Pfizer only has a free cash flow of just over $9 billion according to Yahoo! Finance. That’s a drop in the bucket to what the company would have to pay for Allergan. Of course, fund raising and loans could give them a bit more to work with, coming up with the $121 billion difference from current free cash flow to acquisition cost would be an incredible feat.
Would Pfizer Benefit From Acquiring Allergan?
There’s absolutely no doubt in my mind that Pfizer would benefit greatly from acquiring Allergan. The reality is that Pfizer, while it is one of the stronger companies in biotech, is having a rough time at the moment. Unfortunately, the company has been dealing with a declining sales trend and they need to find a way to reverse this trend. While they did acquire Hospira in a $17 billion deal earlier this year, that acquisition simply isn’t enough to reverse the trend they are dealing with. After all, the company reported a 4% decline in revenue last year and is expecting a 3.8% decline in revenue this year. However, acquiring Allergan, the massive biotechnology company in its own respect, would give Pfizer loads of new products to sell, strong strategies and likely be enough to send the sales trend into a reversal.
Is The Acquisition Likely To Happen?
In my opinion, I think that we could see something positive come of this one. However, it’s important to remember that the acquisition talks are rumors at the moment. There is absolutely nothing solid in the works and neither company has confirmed or denied that they are talking to each other in an attempt to merge the companies. Nonetheless, Pfizer has no debt to speak of and decent free-cash flow. Sure, they don’t have as much free cash as it would take to acquire the company, but they don’t need that for the deal to go through. We’ve seen stock/cash splits, loans and more make big acquisitions happen in the past. All in all, things seem positive for this one.
What We Can Expect To See Moving Forward
Moving forward, I am expecting that this rumor comes to fruition. It may take some time, but it does make sense. When it comes to Pfizer, this is a great company that has a big problem to solve, and the acquisition would help with that. Overall, I’m expecting for this to be the next big catalyst for PFE!
What Do You Think?
Where do you think Pfizer is headed and why? Let us know in the comments below!