Potential Allergan (AGN), Pfizer (PFE) Tie-Up No Surprise But May Take $400 to Get Done

Following an eye-opening report late Wednesday from the WSJ, Allergan (NYSE: AGN) confirmed this morning that it has been approached by Pfizer (NYSE: PFE) about a merger. The company stated there can be no certainty that talks will lead to a transaction.

Analysts on Wall Street are not surprised by the news and believe it makes sense.

"This potential merger was widely expected by investors on both sides, and should be well received," BMO Capital's Alex Arfaei said. "Our view has been that in light of the recent weakness in the group, the probability that Pfizer would do a deal to strengthen its Innovative segment, in order to split it off and unlock its value, had increased."

On price, Nomura's Shibani Malhotra said they do not see Allergan accepting a price below $400 per share. "While Allergan’s valuation has come down significantly (and unfairly in our view) due to the recent sell-off across the sector, we continue to believe this is one of the best companies in the sector with a fundamental fair value of $350. Given the benefits to Pfizer from a merger with Allergan, and accounting for typical premiums paid in our sector (around 25%), we believe that Pfizer would need to pay in excess of $400 per share to satisfy both shareholders and management."

A $400 price tag would suggest nearly 40% upside from yesterday's close.

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