The (failed) Acquisition of Allergan by Pfizer. Multiples Valuation and Event Study Analysis

Table of Contents

1. Introduction

2. Multiples Valuation

2.1 The pharmaceutical industry

2.2 Comparable Companies

2.3 Multiples Selection and Results

3. Transaction Multiples Valuation

3.1 Comparable Transactions

3.2 Multiples Selection and Results

4. Event Study Analysis – Merger

4.1 Parameter Selection

4.2 Results

5. Event Study Analysis – Termination

5.1 Parameter Selection

5.2 Results

6. Conclusion

Research Objectives and Core Themes

This bachelor thesis investigates whether the acquisition price agreed upon by the boards of Pfizer Inc. and Allergan plc. was fair. By utilizing standalone and transaction multiples valuation, as well as conducting event study analyses for both the merger announcement and the subsequent termination, the research evaluates the financial justification of the deal and explores whether the market perceived the merger as value-accretive or if Pfizer significantly overpaid for Allergan.

• Valuation of Allergan using comparable companies and transaction multiples.
• Event study analysis of stock price reactions during the merger announcement.
• Analysis of market responses to the termination of the merger agreement.
• Evaluation of tax-driven motivations and financial synergies in corporate inversion deals.
• Assessment of industry-specific M&A trends and research-based business models.

Excerpt from the Book

Summary of Chapters

1. Introduction: This chapter introduces the failed mega-merger between Pfizer and Allergan, outlining the core research question and the methodological approach of combining valuation techniques with event studies.

2. Multiples Valuation: The author examines the pharmaceutical industry's business models and performs a standalone valuation of Allergan, concluding that the target company appeared overvalued based on market metrics.

3. Transaction Multiples Valuation: This section refines the valuation using comparable M&A transactions in the pharmaceutical sector, ultimately suggesting that Pfizer would have overpaid for Allergan despite potential synergies.

4. Event Study Analysis – Merger: The chapter analyzes market reactions to the announcement, showing that the merger did not convince investors, as stock performance remained below expectations.

5. Event Study Analysis – Termination: This part evaluates the market response to the deal's termination, highlighting that Pfizer's shares reacted positively, further supporting the overvaluation hypothesis.

6. Conclusion: The final chapter synthesizes the results, confirming that the acquisition price was excessively high and that the market's skepticism was justified throughout the process.

Keywords

Pfizer, Allergan, M&A, Multiples Valuation, Event Study, Corporate Inversion, Pharmaceutical Industry, Stock Performance, Abnormal Return, Deal Termination, Valuation, Financial Analysis, Biopharmaceutical, Merger, Market Capitalization.

Frequently Asked Questions

What is the primary objective of this thesis?

The thesis aims to assess whether the proposed $160 billion merger between Pfizer and Allergan was fairly valued or if Pfizer offered an excessive price for the target company.

What central themes are explored in the work?

The work focuses on pharmaceutical M&A trends, corporate tax inversion strategies, standalone and transaction-based business valuation, and stock market reactions to major corporate events.

Which scientific methods are employed?

The author uses a multi-methodological approach, including multiples valuation (standalone and transaction-based) and quantitative event study analysis to measure abnormal returns.

What is the main finding regarding the valuation?

The research concludes that Allergan was consistently overvalued across various metrics and that Pfizer would have paid a significant premium that could not be justified by standard financial modeling.

What does the main body of the work cover?

It covers industry characteristics, detailed financial valuation models, and empirical event studies analyzing both the announcement and the eventual termination of the acquisition.

Which keywords best characterize this research?

Key terms include Pfizer, Allergan, M&A, Corporate Inversion, Multiples Valuation, Event Study, Abnormal Return, and Pharmaceutical Industry.

How did the market react to the announcement of the merger?

The market was skeptical; Allergan’s shares rose but did not reach the conversion value, while Pfizer’s stock did not experience a positive boost, indicating a lack of investor confidence in the deal's value.

What role did US tax law play in this transaction?

The merger was structured as a corporate inversion to shift Pfizer's tax jurisdiction to Ireland, which was a key driver for the deal to mitigate tax liabilities on foreign-earned profits.

Why was the merger ultimately terminated?

The merger was called off following new regulatory interventions by the US Treasury Department aimed at curbing corporate inversion deals, which compromised the financial benefits Pfizer sought.