Pfizer Proposes a Marriage With AstraZeneca, Easing Taxes in a Move to Britain

Pfizer, the maker of best-selling drugs like Lipitor and Viagra and a symbol of business prowess in the United States for more than a century, no longer wants to be an American company.

On Monday, Pfizer proposed a $99 billion acquisition of its British rival AstraZeneca that would allow it to reincorporate in Britain. Doing so would allow Pfizer to escape the United States corporate tax rate and tap into a mountain of cash trapped overseas, saving it billions of dollars each year and making the company more competitive with other global drug makers.

A deal â€" which would be the biggest in the drug industry in more than a decade â€" may ultimately not be done. AstraZeneca said on Monday that it had rebuffed Pfizer, after first turning down the company in January. Nonetheless, the pursuit by Pfizer, founded in a redbrick building in Brooklyn in 1849, has made it clear that the company wishes to effectively renounce its United States citizenship.

Pfizer points out that it would retain its corporate headquarters here and remain listed on the New York Stock Exchange. It also says that the main rationale for the deal is broadening its portfolio of drugs, and saving money through combined operations with AstraZeneca.

Still, a deal would allow it to follow dozens of other large American companies that have already reincorporated abroad through acquiring foreign businesses. They have been drawn to countries like Ireland and the Netherlands that have lower corporate rates, as well as by the ability to spend their overseas cash without being highly taxed.

At least 50 American companies have completed mergers that allowed them to reincorporate in another country, and nearly half of those deals have taken place in the last two years.

But Pfizer is now the largest and best-known of them to try to expatriate.

“Pfizer is the Coca-Cola of health care. It’s as American as apple pie,” said Mark Schoenebaum, an analyst with the ISI Group. “If there is a deal that is going to start a real dialogue in Washington, it might be a company like this.”

On Monday, some lawmakers on Capitol Hill expressed frustration over such corporate moves.

“It is a real problem when the tax code provides an incentive for U.S.-based companies to move overseas, often times taking good jobs with them,” said Representative David Camp, the Republican Michigan who is chairman of the House Ways and Means Committee.

Senator Charles E. Grassley, Republican of Iowa, said, “Until we can reform our tax code so we have a more globally competitive system, businesses will seek ways to limit their taxes in the United States in favor of foreign tax systems.”

Recent proposals from Mr. Camp and the previous chairman of Senate Finance Committee, Senator Max Baucus, Democrat of Montana, have taken aim at such deals. President Obama’s 2015 budget proposal included language that would effectively ban them. By acting now, Pfizer is betting that it can complete a merger to reduce its taxes before any push to change the laws gathers steam.

There are several benefits of being effectively a British company. Pfizer currently pays an effective tax rate of 27 percent. Though it did not specify what the new rate might be, the British corporate tax rate is currently 21 percent and will soon fall to 20 percent.

Analysts at Barclays estimated that for each percentage point less Pfizer paid in taxes, it would save about $200 million a year by reincorporating. People briefed on Pfizer’s discussions said that figure could be substantially higher. That means that Pfizer would be saving at least $1 billion a year in taxes alone.

And moving to a lower-tax jurisdiction would allow Pfizer to tap cash that it holds overseas without paying a steep tax to bring it back to the United States. Of the company’s $49 billion in cash, some 70 to 90 percent of that is estimated to be held overseas. That would help pay for part of the takeover by Pfizer. By using those assets to buy a foreign company, the drug maker would avoid racking up the sort of big tax bill that would come from buying a domestic rival like Bristol-Myers Squibb.

Pfizer’s offer for AstraZeneca, composed of cash and stock, was valued at 46.61 pounds a share ($78.37), roughly 30 percent above where the British company was trading at the beginning of the year.

And being based in a country with a lower tax rate would allow Pfizer to be more aggressive in acquiring other companies. On a call with analysts on Monday, Pfizer’s chief executive, Ian C. Read, a Briton, said Pfizer found it was hard to compete with other acquirers while saddled with “an uncompetitive tax rate.”

Still, he added that even as a reincorporated British company, “we will continue to pay tax bills” in the United States.

The chief executive said that it was his responsibility “to maximize return to shareholders, and I don’t actually see that that conflicts with the interest of the U.S. government.”

American businesses have long complained about the corporate tax rate, arguing that in today’s global marketplace, they are left at a competitive disadvantage.

Many companies aggressively seek loopholes that lower their actual tax rates well below the 35 percent statutory rate. Some choose to reincorporate abroad.

Last year, several American drug makers, including Perrigo, from Allegan, Mich.; Actavis, from Parsippany, N.J.; and Endo Health Solutions, from Malvern, Pa., acquired foreign companies and began the process of moving overseas.

The result will be hundreds of millions of annual tax savings for the companies, and an equivalent amount of money lost to the United States Treasury.

The law allows companies to move overseas if, after a merger or acquisition, foreign shareholders own more than 20 percent of the company.

The rush of such deals, known as inversions, helped push deal activity to heights unseen since before the financial crisis of 2008. On April 22 alone, drug makers announced $74 billion worth of potential deals, including the potential takeover of the maker of Botox and a complicated series of asset swaps between Novartis of Switzerland and GlaxoSmithKline of Britain.

But Pfizer would be by far the best-known company to try such a deal.

“This would be one of the largest tax inversions, if not the largest, in more than 30 years of such transactions, and as an aside, could again reignite calls for U.S. corporate tax reform,” said Alex Arfaei, an analyst at BMO Capital Markets.

For Pfizer, there are other motivations, besides taxes. AstraZeneca makes an attractive target because of its portfolio of cancer drugs, an area that Pfizer has also made a priority as it seeks to restock its product pipeline.

Sales of many of Pfizer’s top-selling products, such as the pain drugs Celebrex and Lyrica, are expected to fall rapidly over the next few years because the drugs will lose their patent protection and enter into competition with cheaper generic versions.

Mr. Read said a combined company would save money and would be able to invest more in research, especially in cancer treatments, that each company could not achieve on its own. One example could be in creating combination therapies, or drug cocktails, to treat cancer in the same way that such drugs have revolutionized treatment of patients with H.I.V.

While obstacles to completing a merger remain, shares of Pfizer surged 4.2 percent on Monday, signaling investor appetite for such a deal. And Mr. Read of Pfizer said he would continue to pursue AstraZeneca.

“We’ve never had a company of this size and stature do an inversion,” said Robert Willens, an independent corporate tax adviser. “It may be that this is the transaction that creates a lot of controversy and calls so much attention to the technique that the legislators get involved and rein these transactions in.”

On Monday, Mr. Read acknowledged as much, saying, “At some point the U.S. government will need to deal with how to make global companies competitive from the U.S.”

Katie Thomas contributed reporting.