The top Pharmaceutical company in the world is J&J with sales of 71 Billion followed by Pfizer at 52B in sales. Pfizer was bidding for the 8th largest AstraZeneca with 26 Billion in revenue.

What is interesting to see is when the two are combined, the revenues would have been at a staggering 78 Billion. The “New Pfizer” would be dominating the industry once again!

Pfizer had made a failed bid for AstraZeneca already in January and the deal was valued at $98.6 billion. This was potentially the biggest foreign takeover of a British company. The biggest pharmaceutical deal was also done by Pfizer, the $112 billion purchase of Warner Lambert in 2000. The current offer would make the AstraZeneca deal the 2nd biggest pharmaceutical deal.

According to KPMG’s 2014 M&A Outlook, the rebound in deals is the result of companies having large cash reserves and access to cheap credit.

What is quite interesting is that everyone was saying that the deal is purely for tax benefits and Pfizer did not seem to make any attempt to hide it either. Pfizer’s statement was: “Pfizer believes the strategic, business and financial rationale for a transaction is compelling.”

There are a lot of recent activities by companies whose main objective is to avoid paying that tax, especially cash held outside the US. Recent news about Starbucks and Amazon are an example. Another is Apple that raised $17 billion for its share buyback program when it already had close to $200 billion in cash!

The buzz was that Pfizer is pushing for this deal to get a 21% tax rate rather than the 33% rate in the U.S. while making it easier for it to spend its foreign earnings, rather than any other strategic advantage.

Such kinds of deals are called “inversions”. That’s when a U.S. company moves its domicile so that it is no longer subject to U.S. corporate taxes. It doesn’t work for actual U.S. earnings, of course, but the idea is to shield everything else around the world from the high 35% U.S. corporate tax rate.

Pfizer is willing to shell out $100 billion for AstraZeneca so it can get a new tax home and lower its tax rate from the roughly 27% it paid last year to the UK tax rate which is now 21% and will drop down to 20% in 2015.

The same logic is applied in the GE bid for Alstom as GE wants to use the $57 billion overseas cash. The total value of cash held outside the U.S. by multinational companies has reached $1.95 Trillion of which $980 Billion comes from just 22 companies.

AstraZeneca has rejected the offer for now, but unless a new legislation is in place in the US blocking such ‘inversions’, my guess is this deal might go though eventually once all the buzz is over.

The same thing cannot be said about the GE’s bid for Alstom. The French government had stopped a takeover of yoghurt maker Danone by PepsiCo on the grounds that it was “strategic” to the French economy. The new law in France gives the state powers to block foreign takeovers in the energy, water, transport, telecom and health sectors – basically most of the companies in France’s CAC-40 index.