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Pfizer Inc. (PFE): Does Smart Money Anticipate Successful Merger With Allergan (AGN)?

We track more than 800 hedge funds and measure the performance of their long stock picks in real time. We created a giant $1.6 trillion portfolio of hedge funds’ long positions. It is true that hedge funds had some high profile losses this year that are “celebrated” by the media but their stock picks actually outperformed the S&P 500 Total Return Index by 50 basis points and the Russell 2000 Index by 410 basis points during the first 2 months of this year. So, on average it is a good idea to pay attention to what hedge funds are doing. Keeping this in mind, let’s take a look at the hedge fund activity in Pfizer Inc. (NYSE:PFE) and see what renowned investors have to say about the company.

Pfizer Inc. (NYSE:PFE) has experienced an increase in activity from the world’s largest hedge funds recently. Pfizer was in the portfolios of 109 hedge funds tracked by Insider Monkey on December 31. That figure was up from 97 at the end of September and ranked it as the eighth-most popular stock overall. The value of those investors’ holdings in the company also soared, to $8.62 billion from $6.09 billion, despite the stock only making modest gains during the period.

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Pfizer did of course have a big catalyst in the fourth quarter which likely prompted many of the new investors to enter the stock, that being its proposed merger with Allergan PLC (NYSE:AGN) towards the end of November, which it’s being reported could help the drug maker avoid as much as $35 billion in taxes, though that report was called “a little misleading” by other sources. Regardless, hedge funds and billionaire money managers have poured into the stock following the announcement. However, not every investor was pleased with the deal, or looking to profit from it. Activist Carl Icahn, no stranger to mergers and splits, called the deal a “travesty” in an op-ed piece published in the New York Times on December 14, saying:

“THE Pfizer-Allergan deal is a travesty. Pfizer, which is based in New York, will move overseas by merging with Allergan, based in Ireland, in a maneuver known as a corporate inversion. The point isn’t to find corporate synergy. It is to leave behind our uncompetitive international tax system.

Not only is this the largest inversion in history, but it will also open the floodgates for other companies to leave the United States, further eroding our tax base, damaging our economy and costing many thousands of jobs”

There’s still a good deal of uncertainty regarding the deal among investors, given the extreme discount to which Allergan is trading at relative to the value that the merger places on it. The deal values Allergan at about $355 per share, while the stock is currently trading below $290, which is a surprisingly large gap for what some believe to be a certainty, barring an act of Congress: