Shares of Actavis (NYSE: ACT), the generic drugmaker with an attractive Irish domicile, jumped 2.4% to a new record high on volume that was more than double the daily average Tuesday on speculation Dow component Pfizer (NYSE: PFE) is mulling a takeover of Actavis.
Pfizer has previously displayed a thirst for mega-deals, attempting to acquire AstraZeneca (NYSE: AZN) for $114 billion before dropping the bid in May. Should Pfizer’s interest in Actavis, a stock widely held by hedge funds, intensify and become formalized, several already high-flying pharmaceuticals ETFs could benefit.
For example, the $533 million iShares U.S. Pharmaceuticals ETF (NYSEArca: IHE) has an almost 5.4% weight to Actavis while the nearly $385 million Market Vectors Pharmaceutical ETF (NYSEArca: PPH) devotes 4.4% to the stock.
With both ETFs being home to Allergan (NYSE: AGN), Salix Pharmaceuticals (NasdaqGS: SLXP) and Perrigo (NasdaqGS: PRGO), among others, neither IHE nor PPH are lacking for potential takeover targets. However, that brings up another issue regarding why investors should assess the fundamentals of the pharmaceuticals industry before buying the aforementioned ETFs and others rather than banking on the possibility these ETFs will rise solely due to mergers and acquisitions activity. [ETFs for a Salix Takeover]
Combining the debate over decrepit U.S. tax policy and recent mergers and acquisitions activity in the health care sector, it is not a stretch to say Pfizer prizes Actavis for the latter’s Irish domicile, one garnered by acquiring Warner Chilcott Plc last year.
The U.S. Treasury Department intends to make it harder for U.S. companies to move their headquarters abroad as a way diminish taxes owed, or also known as inversion, Bloomberg reports.