US drug manufacturer Pfizer has signed an agreement to buy Irish Botox maker Allergan for $160bn, which will create the world’s largest pharmaceutical company.

Allergan’s parent firm will be the parent of the combined business and its shareholders will receive 11.3 shares of the new firm for each of their existing shares.

The deal will see Pfizer stockholders get one share of the new company for each of their shares or a portion of payment in cash from $6bn to $12bn.

As part of the proposed deal, the businesses of both companies will be combined under Allergan plc, which will be renamed Pfizer plc.

Following completion of the deal, the combined company is expected to maintain Allergan’s legal and tax residency in Ireland.

The deal will see Pfizer have its global operational headquarters in New York and its principal executive offices in Ireland.

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Pfizer chairman and chief executive officer Ian Read will head the combined company, while Allergan CEO Brent Saunders will serve as president and chief operating officer.

Read said: "Allergan’s businesses align with and enhance Pfizer’s businesses, creating best-in-class, sustainable, innovative and established businesses that are poised for growth.

"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 US, while also enabling our pursuit of business development opportunities on a more competitive footing within our industry."

The combined company will benefit from a portfolio of medicines in several categories. Pfizer will improve its research and development capabilities in new molecular entities and product line extensions.

A combined pipeline of more than 100 mid-to-late stage programmes will support business growth in the long-term.

Subject to regulatory approvals in the US and Europe, the transaction is expected to be completed in the second half of next year.

Charles Stanley research analyst Rae Ellingham said: "The deal looks set to go ahead despite US Treasury opposition and the introduction of new rules designed to prevent tax inversion where a company relocates its legal domicile to a lower tax nation.

"The deal looks set to go ahead despite US Treasury opposition and the introduction of new rules designed to prevent tax inversion."

"Rules aimed at preventing inversions were first tightened after Pfizer bid for AstraZeneca back in 2014 and played a large part in AbbVie’s withdrawal of a $54bn offer for Shire.

"Should the Pfizer-Allergan deal go ahead, we would expect that tax inversion rules may be tightened even further and potentially new legislation introduced.

"If any other US companies have had their eye on Shire, domiciled in Ireland like Allergan, it would pay for them to move quickly.

"Shire can only have become a more attractive takeover target, post the 20% fall in its share price following the Group’s announcement of its intention to pursue US Baxalta."

Meanwhile, politicians in the US have condemned the deal to be a tax dodge as it could allow Pfizer to escape relatively high US corporate tax rates by moving its headquarters to Allergan’s Dublin base.

Image: Pfizer world headquarters. Photo: courtesy of Jim.henderson.