Is Pfizer Inc. (NYSE:PFE) breakup on the horizon in 2016?

It appears the breakup of Pfizer Inc. (NYSE:PFE) after merger with Allergan plc (NYSE:AGN) could happen sooner than 2018. Analysts predict that Pfizer could separate its “innovative business” from its “established business” in 2016. However, management is deliberately choosing to be vague on the matter, saying that a decision to break up could be made by 2018 or later.

The issue of breaking up Pfizer Inc. (NYSE:PFE) is almost settled internally in the current arrangement and only the acquisition of Allergan could delay things. At least since 2014, Pfizer has internally separated its established business, which includes older and off-patent drugs, from innovation business, which includes patented medicines.

However, the company has been hesitant to formally break up the two businesses into independent companies for fears that neither is currently strong enough to stand on its own. It is believed that the acquisition of Allergan will strengthen the two business divisions, thus making the ripe for breakup.

Pfizer is paying $155 billion to bring Allergan under its armpit.

Why breakup could come in 2016

It is the process of digesting Allergan that could see the formal break of Pfizer Inc. (NYSE:PFE) delayed. But even so, pushing back the split by two years (until 2018) as suggested by the management seems to be a long time. That explains why analysts anticipate that if Pfizer gobbles up Allergan in 2016, the breakup process could start immediately.

Cost-saving opportunity

Pfizer Inc. (NYSE:PFE) is hoping to eliminate $2 billion in costs by combining with Allergan. The deal, which is also expected to see Pfizer relocate its tax base to Ireland, would also lower the company’s tax burden to about 17-18% from more than 25% currently.

Combing Pfizer Inc. (NYSE:PFE) with Allergan will result in the world’s largest drug company with more than 110,000 workers and over $63.5 billion in annual sales. The combined organization is also expected to have an annual research budget of at least $9 billion.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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