Pfizer announced Monday it will buy Allergan for $363.63 a share, or about $160 billion in the biggest deal ever in the health sector. It said it will likely relocate its global headquarters from New York to Ireland, a move that will cut the drug giant's U.S. tax burden.
The deal represents a premium of over 30 percent based on the price of the companies' unaffected shares as of Oct. 28, Pfizer and Allergan said in a joint statement.
Pfizer stock was down 2.6 percent Monday afternoon, and share prices of Allergan were down 2.2 percent.
"Through this combination, Pfizer will have greater financial flexibility that will facilitate our continued discovery and development of new innovative medicines for patients, direct return of capital to shareholders, and continued investment in the United States, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry," Pfizer CEO Ian Read said.
Allergan shareholders will receive 11.3 shares of the combined company — Pfizer PLC — for each Allergan share, while current Pfizer shareholders will receive one share of the new company for each share they own.
The deal, the largest ever in the health care sector, is expected to close in second half of next year. Pfizer said it expects to redomicile to Ireland, where Allergan is registered. The latest such "inversion" would slash its Pfizer's corporate tax rate from 40 percent to 12.5 percent.
After the announcement, Democratic presidential hopeful Hillary Clinton said Monday she would propose steps to prevent inversions. "We cannot delay in cracking down on inversions that erode our tax base," she said.
Read, however, called the agreement "a great deal for America. It allows us to continue to sustain an investment of, you know, approximately $9 billion mainly spent in the United States," he told CNBC. "We have 40,000 combined employees in the United States so I think it's a great deal."
"Given the price tag we're seeing them pay for Allergan, I think it's tough to justify without the tax benefits. There's a bit of strategic overlap; there would be some accretion and it adds to Pfizer's growth, but it really is that tax benefit at the end of the day that Pfizer's been very vocally pushing for," Vamil Divan, an analyst at Credit Suisse, told CNBC's "Squawk Box."
The White House said Monday the Treasury Department has tried to discourage companies from moving forward with inversions, adding that it has seen the pace of inversions slow down following the department's administrative actions. The White House did not comment specifically on the Pfizer-Allergan deal, but said Congress should take legislative action to prevent inversions.
"It's the great failing of our government administration that we can't have a competitive tax rate, but there's no question there's going to be — at the minimum — a lot of headline risk," Barbara Ryan, partner at strategy firm Clermont Partners, said in another "Squawk Box" interview.
Still, Read told CNBC's "Squawk on the Street" he'll try to complete the deal regardless of the tax benefits. "But I suspect the price would be different."
The takeover reignites debate in the pharmaceutical industry over the role of research and development, with Allergan Chief Executive Brent Saunders, a prolific dealmaker and a skeptic of in-house drug discovery, joining the combined company in a position to influence its strategy.
"The combination of Allergan and Pfizer is a highly strategic, value-enhancing transaction that brings together two biopharma powerhouses to change lives for the better," Saunders said.
Pfizer's Read, 62, will be CEO of the combined company, with Allergan's Saunders, 45, serving in a very senior role focused on operations and the integration.
Saunders will also have a seat on the combined company's board.
— CNBC's Meg Tirrell and Reuters contributed to this report.