Pfizer, Allergan Win Out as Tax Benefits Blunt Repatriation Blow

(Bloomberg) -- Four of the 20 biggest health-care companies in the Standard & Poor’s 500 Index saw a benefit from the tax overhaul in the fourth quarter.

The biggest gain was pharmaceutical giant Pfizer Inc. with a $11.5 billion benefit, followed by Allergan Plc with $2.78 billion, data compiled by Bloomberg shows.

The difference lies in how the companies decided to deal with their overseas cash.

Most of the firms that saw a tax charge in the quarter no longer considered their overseas earnings permanently reinvested and had to pay a repatriation transition tax. These companies elected to pay off their tax charges over the next eight years.

As a result of the tax changes, U.S. corporations had to recalculate the value of their deferred tax assets or liabilities under the new corporate-tax rate of 21 percent, down from the previous 35 percent. Companies either took a one-time charge or benefit.

The data analysis focused on the 20 largest health-care S&P 500 members measured by market value, out of 61. Among the top 20, the two other companies that recorded a benefit were health insurers UnitedHealth Inc. and Anthem Inc., which have no overseas operations and didn’t pay repatriation tax.

For companies like Pfizer that gained access to their overseas cash, Wall Street will scrutinize in the coming quarters how the extra money is allocated. Pfizer Chief Executive Officer Ian Read said during an earnings call on Jan. 30 that the drugmaker will use the tax funds for capital projects in the U.S. and increase pension fund contributions.

As for the companies that took a charge this past quarter, some are looking to spend more.

Johnson & Johnson, which took the biggest tax charge among the 20 companies, with $13.6 billion, has pledged to spend more on research and development going forward.

--With assistance from Karishma Motwani and Herb Scheuren (Bloomberg Global Data).

To contact the reporter on this story: Vishal Persaud in Seattle at vpersaud1@bloomberg.net.

To contact the editors responsible for this story: Lauren Berry at lberry4@bloomberg.net, Cecile Daurat, Timothy Annett

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