Allergan's (NYSE:AGN) days as a standalone company are numbered. We don't know exactly when AbbVie's (NYSE:ABBV) pending acquisition of Allergan will close, but it should happen sometime in the first quarter of 2020.

This deal certainly lit a fire beneath Allergan stock, with the drugmaker's shares soaring 45% since the transaction was first announced. But is Allergan still a stock to buy with the AbbVie acquisition likely to close so soon?

Two men holding big jigsaw puzzle pieces with a light bulb drawn on one piece and an equals sign and dollar sign drawn on the other piece

Image source: Getty Images.

Understanding the deal

It's first important to understand the terms of AbbVie's acquisition offer. Allergan shareholders stand to receive 0.866 AbbVie shares plus $120.30 in cash for each Allergan share that they own.

When the deal was announced in June 2019, this translated to a total transaction value of around $63 billion. Based on AbbVie's share price at the time, the acquisition valued Allergan at $188.24 per share.

Today, though, AbbVie's shares are trading more than 10% higher than they were seven months ago. And Allergan's share price is now around $192, a little higher than its valuation when AbbVie's plan to buy the drugmaker was disclosed.

Joined at the hip

These transaction terms should be at the forefront of investors' minds when considering whether or not to buy Allergan stock. The reality is that AbbVie and Allergan are already joined at the hip even before the deal is finalized.

If you're hoping to make a quick profit, Allergan's share price will depend largely on whether AbbVie's shares go up. Even if Allergan announces wonderful news over the next few weeks, shareholders will still only receive $120.30 in cash for each Allergan share they own. But any significant good news for Allergan should push AbbVie's share price higher, which in turn will benefit Allergan shareholders when the transaction closes.

Long-term investors thinking about buying Allergan stock should focus even more on AbbVie's prospects. This isn't a merger of equals. AbbVie is a much bigger company than Allergan is. AbbVie's shareholders will own 83% of the combined entity.

It's important to remember the main reason why AbbVie is buying Allergan. Sales are declining for AbbVie's top-selling drug, Humira, in the face of competition from biosimilars in Europe. Biosimilars will enter the U.S. market in 2023 -- and that's when the pain will really intensify for AbbVie. The Allergan acquisition is being made to reduce AbbVie's dependence on Humira, but the immunology drug will still contribute close to 40% of the company's total revenue even after the Allergan transaction closes.

Buy Allergan if...

Basically, there are only three reasons to buy Allergan right now:

  1. You expect some big catalyst for Allergan or AbbVie in the very near future and plan to sell on any major jump in Allergan's share price.
  2. You think that AbbVie will be able to deliver solid returns over the long run with Allergan's products and pipeline in its lineup.
  3. You're seeking income from dividends.

If the first reason is your primary motivation for buying Allergan, my view is that you're making a mistake. There's no guarantee that either AbbVie or Allergan stocks will pop over the next few weeks before the acquisition closes.

However, I think that the second reason listed to buy Allergan right now makes sense. Although Humira's best days are behind it, AbbVie has other drugs that should drive growth, especially including cancer drugs Imbruvica and Venclexta and new immunology drugs Rinvoq and Skyrizi. Allergan's Botox and antipsychotic drug Vraylar should also boost AbbVie's sales.

If you're an income-seeking investor, buying Allergan before the AbbVie acquisition closes seems like a pretty astute move. You'll get a lot of your cash back relatively quickly thanks to the cash portion of AbbVie's acquisition offer. You'll also own shares of one of the more attractive dividend stocks on the market, with AbbVie's dividend currently yielding nearly 5.4%.

All this, of course, assumes that AbbVie's acquisition of Allergan will wrap up as expected. Could something derail the deal? It's possible but very unlikely at this point. If you're considering buying Allergan, your fortunes are almost certainly linked to AbbVie, too.