Johnson & Johnson (JNJ) are buying products such as Benadryl and Visine from their current owner, Pfizer Inc. (PFE) and will be receiving a tax break of at least a quarter of the $16.6 billion cost, according to this Newsweek.com article.
That's because the deal is set up as an asset purchase, and J&J is paying with cash. That makes the purchase price tax-deductible to J&J. The deal is taxable to Pfizer—but as we'll see, J&J's tax savings exceed Pfizer's tax costs.
The article goes on to state:
Even though J&J stands to save an indicated $6.6 billion in taxes over time, you can't compare that number with the $16.6 billion purchase price, because getting money over a decade and a half isn't the same as getting it today. So you have to calculate today's value of those future savings. If you run this through a spreadsheet program, those tax breaks are worth $4.3 billion—more than a quarter of the purchase price—if you use a conservative 6 percent interest rate. If you use 5 percent, the tax break is worth $4.6 billion.
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