Will Allergan Buy Gilead? Don't Count On 'The Mother Of All Blockbusters'

According to Nisen, while Gilead's market cap at $107 billion is $70 billion below its peak last year, it is still bigger than Allergan's $95 billion market cap.

Granted, Allergan had $27.56 billion in cash as of its second-quarter earnings conference call, but since then, it announced four deals worth more than $1 billion this month alone. Add in the company's nearly completed $5 billion share buyback, and its cash balance is "likely closer to $20 billion than $30 billion."

Meanwhile, Allergan still has a "heavy" debt load of $33.2 billion even after it sold its generics business to Teva Pharmaceutical Industries Ltd (ADR) (NYSE: TEVA) for $40.5 billion.

If investors are concerned about $33.2 billion in debt, how would they feel about Gabeli's hypothetical acquisition of Gilead, which would require $113 billion in debt financing?

In fact, a combination of Allergan and Gilead would create an entity with a bigger net debt load than any non-financial company.

Finally, Gabeli's analysts hinted that if Allergan is indeed becoming serious about liver diseases, then buying the industry leader, Gilead, "makes some sense." Nevertheless, Allergan's recent "aggressive foray" into liver disease suggests it is "positioning itself as a competitor to Gilead's NASH drugs, not a parent."

Bottom line, Gabeli's analysts may have been right in suggesting that Gilead's stock is cheap relative to its peers on a forward earnings basis. However, any deal would "still be tough to afford for just about any acquirer."

At time of writing, Allergan was up 2.02 percent on the day at $243.09, while Gilead was down 0.54 percent at $81.26.