REUTERS/Mary Schwalm
The merger allows Pfizer to relocate its headquarters to Ireland, where Allergan is incorporated and the tax rate for corporations is 12.5% - less than the US rate of 39.2%. For Pfizer, it means taxes will go as low as 17% from about 25%.
It's a move called a "tax inversion," and it's been a popular move by drug companies.
Perhaps for obvious reasons, it's not always politically popular. Since the deal was announced on Monday morning, politicians including US Sen. Bernie Sanders (I-Vermont) and Republican presidential candidate Donald Trump, have begun to take a stance against the deal. The White House said that it didn't have a comment on the deal specifically, but that Congress should act to prevent these types of moves.
Pfizer CEO Ian Read, who has made no secret of his desire to lower Pfizer's tax bill, seems to have anticipated this. During a call announcing the merger, he said that the company had "assessed the legal, regulatory, and political landscape" and had decided that this inversion was the best call.
Then, in an interview with CNBC's Meg Tirrell on Monday, Read said that "this is a great deal for America."
But not everyone agrees. Sanders was first to condemn the move.
"The Pfizer-Allergan merger would be a disaster for American consumers who already pay the highest prices in the world for prescription drugs," Sanders said in a statement on Monday. "It also would allow another major American corporation to hide its profits overseas."
Sanders added that the current government could put a block on the deal: "The Obama administration has the authority to stop this merger, and it should exercise that authority."
The US Treasury Department has done this before. In 2014, it issued a notice on tax inversions that ended a similar deal between pharmaceutical companies AbbVie and Shire. That move put a chill on inversions, which were popular in 2014.
And last week, the Treasury outlined more rules on tax inversions. Pfizer's Read, for his part, says the deal is compliant with regulations.
It's not immediately clear what Treasury would do to block the deal, and investors took the politician's comments in stride. Shares of Allergan were down about 3.3% in the afternoon, close to where they traded for most of the day.
"The tax system is complex, and some rules cannot be changed by the US Treasury without congressional approval," Moody's debt analysts wrote in a note Monday. "Any rule change that makes it more costly to access the two major sources of cash - i.e., cash existing at the time of the merger or future cash flow generated after the merger - would detract from the tax benefits of the deal."
Clinton pledges fight
Sanders wasn't alone.
Trump has also weighed in, blaming politicians for letting it happen.
"The fact that Pfizer is leaving our country with a tremendous loss of jobs is disgusting," he said in a statement to Business Insider. "Our politicians should be ashamed."
Former US Secretary of State Hillary Clinton also criticized the deal, saying in a statement: "For too long, powerful corporations have exploited loopholes that allow them to hide earnings abroad to lower their taxes. Now Pfizer is trying to reduce its US tax bill even further. This proposed merger, and so-called inversions by other companies, will leave US taxpayers holding the bag."
Clinton also said that, as president, she would fight inversion deals and promised to illustrate steps "to prevent these kinds of transactions." She also called upon regulators to intervene.
Democratic presidential candidate Martin O'Malley opposed the deal, too. In an emailed statement on Monday, he said: "The Pfizer-Allergan merger is fundamentally unfair, and a prime example of how our capitalist economy is not supposed to work. American small businesses and middle-class taxpayers do not have the ability to game the system and avoid paying the taxes they owe - Pfizer should not be able to either."
Pfizer and Allergan hope to finalize the deal in the second half of 2016.