Many observers were initially left scratching their heads over Pfizer’s pursuit of AstraZeneca, a company that has had major pipeline troubles of its own.  As more information has come out, Pfizer’s strategy is beginning to make sense.  They aren’t pursuing an old-style mega merger (click here to see the WSJ’s take on the Pfizer family tree).  Instead, Pfizer is looking to take advantage of some enticing tax-minimizing strategies that include using overseas cash to finance the acquisition and locating the merged corporation in the United Kingdom.

Company executives were outspoken about how their attempted takeover of AstraZeneca, which was confirmed early Monday, would help Pfizer slash its tax bill, saving $1 billion or more each year by one estimate.

Indeed, the U.K. offers a lower corporate tax rate, enhanced credits for R&D, and is considering taxing income from patents at a rate of only 10%. According to the Wall Street Journal, Pfizer’s effective tax rate was 27% last year, compared to 21% for AstraZeneca.

In terms of existing products and pipeline impact, the deal is also more focused than you might think.  Pfizer has outlined exactly where AstraZeneca’s compounds would go, and they do fit quite nicely into the existing categories that comprise Pfizer’s current divisions: (1) Global Innovative Pharma (including Immunology and Cardiovascular/Metabolics), (2) Vaccines, Oncology, Consumer Health, and (3) Established Products (mostly generics, and other off-patent products).  That three-way divisional structure, incidentally, prepares the company for a potential value-maximizing breakup down the road.

Forbes’ Matt Herper has the details on merged pipeline implications, and the Financial Times has a big roundup from the U.K. perspective.  Pharma M&A activity is heating up, and it sure looks more focused than in years past.  Stay tuned…