The deal to combine Pfizer and Allergan was set to be the largest drug merger ever. Instead, it will go down as a huge bust.
It’s not just the Pfizer (PFE) and Allergan (AGN) executives who are reeling from essentially being forced to abandon their $160 billion deal Wednesday—Allergan’s CEO Brett Saunders called the government’s actions to block the deal “unAmerican”—but some of Wall Street’s finest also are probably also feeling a bit down as well.
Allergan and Pfizer had hired advisors to guide them through the biggest deal of 2015—advisors who would’ve received over $230 million in fees, according to Freeman and Company, which was reported by the New York Times. The majority of that figure was likely to be paid after the deal closed.
Hedge funds have also clocked in losses after having bet on the merger’s success.
Here’s who lost the most in the blockbuster breakup.
Pfizer
Pfizer CEO Ian Read has been pretty clear that he believes the only way to get his company out of its long-term funk was to do a big deal. Once again, he’s going to have to back peddle. It’s the second big deal that Read has lost out on in more than two years.
In addition to the cost of the $150 million breakup fee Pfizer will have to pay Allergan, the deal will certainly deal some damage to Pfizer and Read with investors. Read was out there proclaiming the tax benefits of the Allergan deal. But he also sold the deal as a way for Pfizer to expand its drug portfolio and potentially part of a plan to break the combined company up into parts. Now the concern for Pfizer is whether the standalone company will be too small to weather a breakup. Pfizer has reported plans to make a decision by 2016.
Since Pfizer first spelled out its intention to broach a large acquisition nearly two years ago, Pfizer’s stock has fallen 2%. That was shortly after Pfizer’s play for AstraZeneca fell through. Pfizer’s stock also lost 16% through the end of March since the its deal with Allergan was first rumored back in late October. Next time, Read signals he would like to do a big deal, investors may signal it’s time for him to go.
Wall Street
Allergan’s deal advisors, JPMorgan Chase (JPM) and Morgan Stanley (MS) were expected to split $142 million for their services.
Goldman Sachs (GS), Centerview Partners, Guggenheim, and Moelis had been working on Pfizer’s side of the deal for at least five months since news of the deal become public—and for probably a lot longer than that—and were set to split $94 million. Notably, the loss of the deal was felt much more acutely by smaller boutique firms, Moelis, Centerview, and Guggenheim. Moelis dropped from 20th to 13th place among top dealmakers, Centerview from 10th to 11th, and Guggenheim from 18th to 12th.
Hedge Funds—A Lot of Hedge Funds
Hedge fund Paulson and Company, an $18 billion fund run by billionaire John Paulson, who famously made billions wagering on a housing bust in the mid-2000s, got his start betting on mergers. But at least in this case, sticking to his roots has not paid off for Paulson. According to hedge fund research firm Symmetric.io, the fund and its investors lost $258 million Tuesday when Allergan’s stock also fell 16%, Reuters reported. Granted the calculations are based on Paulson’s regulatory filings as of Dec. 31. Paulson could have sold off parts of his stake since then.
According to Symmetric.io, other major hedge fund investors including Andreas Halvorsen’s Viking Global Investors, Daniel Loeb’s Third Point and Pentwater Capital Management have also lost more than $200 million each on Tuesday.
