Pfizer and Allergan in merger talks

US pharma giant Pfizer is understood to be in merger talks with Allergan, which, if the deal goes through, would create a new number one player in the sector.

The Wall Street Journal has reported that Pfizer recently approached Allergan, best known for its blockbuster 'cosmoceutical' product Botox, citing people familiar with the matter.

Allergan currently has a market value of $113 billion, and a bid for the firm would satisfy Pfizer's long-standing attempt to grow via acquisition – preferably by buying a firm with a low tax base outside the US. Last year Pfizer made an unsuccessful bid for the UK-domiciled AstraZeneca, partly motivated by the billions it would save in not having to repatriate earnings made outside the US.

A takeover of Allergan could offer similar advantages given that the Botox maker is based in lower-tax Dublin. A US attempt to crack down on such tax avoidance deals led to the collapse of AbbVie's bid to buy Shire, but it is unclear whether those rule changes would preclude potential tax advantages from a Pfizer-Allergan deal.

The pharma, medical devices and health insurance sectors have seen an unprecedented wave of deals since 2014, with a variety of deals significantly reshaping the environment.

Pfizer acquired biosimilars specialist Hospira last year for $17 billion, but has plenty of cash reserves for further major acquisitions.

Pfizer is expected to see its revenues decline 3.3 per cent this year, while Allergan, fresh from its own round of mergers and deal-making, would give the company strong growth.