RBC Analyst Says 'Buy The Spread' On Allergan-Pfizer Deal

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  • Allergan plc Ordinary Shares AGN have been volatile in recent months and are down 15 percent since August 10.
  • RBC Capital Markets’ Randall Stanicky maintained an Outperform rating for the company, with a price target of $354.
  • Tax experts suggest that there are little chances of the pending deal between Allergan and Pfizer Inc. PFE failing, Stanicky stated.

Analyst Randall Stanicky mentioned that recent weeks had witnessed a pickup in the call volumes over the anticipated deal between Allergan and Pfizer. Investors have been concerned about whether FTC could pursue an anti-stuffing approach to impact the deal.

Moreover, there are investor concerns surrounding the August 2014 non-disclosure agreement relating to whether the Actavis acquisition of Allergan could be “excluded from ownership calculation given that ACT/PFE had held discussions before the deal,” Stanicky said.

The analyst expects the deal between Allergan and Pfizer to close in 2H16. He pointed out that the confidentiality agreement was previously disclosed in filings and that both the companies had already reviewed the anti-stuffing risk before announcing the deal.

“We would point to PFE's pursuit of AZN and AGN's divestiture of its generics business to TEVA as support against anti-stuffing,” Stanicky wrote.

RBC Capital Markets’ tax expert Bob Willens believes that the move by Actavis to acquire Allergan is not related to the Pfizer deal.

“In other words, he views it as unlikely that AGN can be stripped from denominator and thus push PFE ownership over 60% (from current 56%) limiting the benefits of the deal structure. Even in the unlikely scenario where Treasury introduced a temporal proximity rule (Bob Willens sees likelihood at <10%) the believes PFE would be able to extract benefits, making a deal break unlikely in our view,” the report noted.

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Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsTrading IdeasRandall StanickyRBC Capital Markets
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