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Tax for the CFO: Should Pfizer Acquire Allergan?

by Michael Saunders, Mitchell Stein, and Matthew Sooy

The chief financial officer of Pfizer Inc. (Pfizer), Frank D’Amelio, must choose whether to proceed with a tax inversion—a merger that relocates a company’s tax residence to a country with lower taxes—by merging with Allergan plc (Allergan), a company headquartered in New Jersey but with tax residence in Ireland. The price tag for the deal is impressive—US$152 billion, a 30-per-cent premium ($35 billion) over Allergan’s pre-announcement market cap. D’Amelio must evaluate whether the potential tax savings generated from moving Pfizer’s tax residence to Ireland exceed the price premium on Allergan’s stock. If D’Amelio proceeds with the deal, a $400-million breakupclause will be activated, making it costly to walk away from the deal later.  To evaluate the deal, students must learn more about tax inversions and tax planning strategies. In the course of the discussion, students learn how the tax inversion can help Pfizer lower the taxes paid both on future profits and on the repatriation of offshore cash that has accumulated over years of tax management practices. At the time of the merger, Pfizer held $74 billion of offshore cash.



Sink or Float: An Oliver Wyman and Duke Royalty Investment Opportunity

Mary Gillett, Amy Horrocks

In late 2016, an analyst at Oliver Wyman (OW), was contemplating the high stakes of her new project. European riverboat company Temarca Group (Temarca) had just approached Duke Royalty (Duke) seeking €9.0 million to expand its riverboat fleet at the time. The analyst had to consider the first potential investment for the newly-formed partnership. If a financing decision was made, Temarca would be one of the first investments in Duke’s portfolio. The analyst had to ensure this investment was aligned with Duke’s investment mandate, met the financial criteria, and delivered the targeted returns essential to please keystone investors. Similarly, she knew this deal would be highly scrutinized by the OW partners because Temarca would be OW’s first fully-financed deal with Duke. With all this in mind, the analyst's task was to make a preliminary recommendation to the chief executive officer of Duke and a founding partner of OW about the soundness of the opportunity. She had to decide whether Duke should invest in Temarca or pass on this opportunity.



Delta 9 Cannabis: Picking a Path to Growth during Turbulent Times

Kun Huo, Pavandeep Sehra

Delta 9 Cannabis Inc. produced and sold recreational cannabis in Canada—a market that after legalization was characterized by volatility in supply, demand, and regulations. Nonetheless, Delta 9 grew rapidly, and March 31, 2020, marked Delta 9’s best-ever fiscal quarter. However, Delta 9’s share prices had deflated over the previous year and the economy had recently been upended by the COVID-19 pandemic. Thus, there was considerable uncertainty regarding the outlook of Delta 9’s three main business segments, each facing unique challenges and opportunities. The chief executive officer must decide how to allocate existing capital to keep Delta 9 on the path to growth.



Tax for the CFO: Should Pfizer Acquire Allergan?

Matthew Sooy, Mitchell Stein, Michael Saunders

On November 20, 2015, the chief financial officer of Pfizer Inc. (Pfizer) was preparing to make a recommendation about whether to proceed with or stop merger talks between Pfizer and Allergan plc (Allergan), a pharmaceutical company with headquarters in New Jersey but tax residence in Ireland. Informal talks had been going on for almost a month, but both sides were rapidly approaching the pre-arranged deadline. The two teams had less than a week to either formally agree to proceed with a merger or walk away. Formalizing the agreement meant activating a US$400 million breakup clause that would make it costlier to call the deal off at a later date. Allergan’s Irish tax residency made this merger both attractive and concerning. While it provided the opportunity to lower Pfizer’s worldwide tax rate, the U.S. Treasury Department had recently announced regulatory changes targeting mergers that relocated a company’s tax residence to a low-tax country (called “tax inversions”). Pfizer’s legal team members were confident that the announced changes would not affect the proposed merger with Allergan. However, they were less certain about if—and when—the U.S. Treasury Department might make changes again.



Pan-China Consulting Services: Assessing Future Directions

Yaqi Shi; Chaopeng Wu; Shi Li;Han Chen

In February 2020, Pan-China Consulting Services Co. Ltd. (Pan-China) was entering its third decade in operation. Pan-China’s founder was reviewing the firm’s evolution and discussing several key opportunities with his team. Over the previous two decades, the company had shown solid performance in providing financial and capital markets advice to over 200 companies. It had generated strong returns for its key investors, who ensured that every deal was financially secured by the company’s auditing, financial, and consulting expertise. However, the founder and his two senior advisers had to make some decisions. Should Pan-China participate in a new round of private placement investment? Should it consider investing in a second opportunity? Which fund issuance would be the best fit for Pan-China? Was its consulting and investment business model sustainable?


MJD Manufacturing: Capital Budgeting Decisions during a Pandemic

Yaqi Shi; Ryan Hudgins; Dante Mascarin

In April of 2020, an Ivey Business School HBA graduate, and chief executive officer of automobile parts manufacturer MJD Manufacturing (MJD), recognized the potential opportunity to invest in new machinery and retool some of MJD’s operations to produce COVID-19-related supplies. Specifically, she was considering whether or not MJD should produce personal protective equipment. Aside from analyzing the financial viability of the potential investments, she had to consider three factors: First, how long the COVID-19 pandemic might last, as the timeline of the pandemic underpinned the potential investment decision; second, how an investment would be financed; and third, the qualitative aspect of the decision. Specifically, she had to consider how she could help her community at a time when many businesses were shrinking and furloughing employees.