Earlier this month, I showed you just how oversold pharmaceutical makers and developers have become after presidential hopeful Hillary Clinton’s tweet about price gouging. 

I recommended Gilead as a great rebound play on this theme. Since then, it’s recovered as much as 8.3% of its share price.

Today, we have a different development. Pfizer (NYSE: PFE) announced that it approached Allergan (NYSE: AGN), the maker of Botox, about a deal to combine forces. 

Allergan confirmed this news and told reporters that it is indeed a friendly negotiation and that it would create the largest pharmaceutical company in the world — topping even Johnson & Johnson (NYSE: JNJ).The combined company would be worth around $330 billion. That would make it the sixth largest company in the world, ahead of General Electric (NYSE: GE), J&J and Procter & Gamble (NYSE: PG).

And it’s not because Pfizer thinks more people are going to heading into the Botox fad. 

Allergan is located in Ireland. In other words, U.S. politicians wouldn’t be able to touch the new company if it keeps its Dublin address.

Although the merger was first proposed by Pfizer it will actually only benefit Allergan shareholders. 

You see, Allergan has serious baggage. It was part of a previous deal that has left its balance sheet bulging with debt — $43 billion of debt to be precise.

The original Allergan was actually bought by a company called Actavis earlier this year, which took on the Allergan name. And ever since that first deal, the combined company has been struggling to turn any profits. In the first six months of this year, Allergan lost $470 million. 

But shares of both companies jumped yesterday after they announced the potential deal. But they are still down along with the rest of the biotech and health care industries since the Clinton remark last month. 

Pfizer, on the other hand, is proving that it just wants to get out of the United States at any cost. 

A year and a half ago, it tried to buy U.K.-based AstraZeneca PLC (NYSE: AZN). That deal fell through, but the principal was the same. The products don’t matter. The address does.

Of course, back then — as with this current negotiation — it has more to do with taxes than what some politician claims she’ll do if she wins office. You see, if Pfizer sets up shop in either the U.K. or Ireland, its corporate tax rate would decline. That doesn’t mean it would stop selling to the United States. In fact, since it would be “exporting” at that point, it would begin receiving an income boost from the recent strength in the U.S. dollar. 

So, who is the winner in all of this? 

The answer may surprise you.

My Pick To Profit From The Pfizer-Allergan Deal
It’s not Allergan. The maker of Botox is sitting on a pile of debt just as the Fed is discussing a rate hike in less the two months’ time. 

It’s not Pfizer either. Its owners are desperately trying to relocate and are risking overpaying for that privilege. 

The real winner(s) in all of this are companies like GlaxoSmithKline plc (NYSE: GSK) — any company with a strong balance sheet, profitable products and a foreign mailbox.

You see, even if Pfizer and Allergan come to terms and the deal goes through swimmingly, there are others like Merck (NYSE: MRK) and Eli Lilly (NYSE: LLY) watching to see how Pfizer fares in this deal.

Meanwhile, GSK is perfectly positioned. In fact, you could say it has been positioning itself already for a deal to come its way.

Recently, it has been making smaller deals and partnerships that should attract plenty of attention. Last year GSK and Novartis (NYSE: NVS) — an even larger Swiss drug company — came to a deal to swap certain divisions and form a joint venture. 

So far, it appears Novartis has been favored by investors. But that just makes GSK even cheaper.

Right now, GSK is trading at 16 times its expected 2016 earnings (which reflect the increase in revenues once the Novartis deal is complete). That’s significantly cheaper than the rest of the industry, which usually trades at a premium valuation. The industry is averaging a trailing 12-month P/E of 25 right now. 

Of course, it won’t be an easy ride for anyone taking this approach.

GSK has had a few years of declining sales, due to patent expirations — particularly in its Omega-3 drug Lovaza. 

It has also been under fire, unfairly, because the company is a top vaccine maker.  Vaccines have come under fire over the last year or two for being unhealthy by many Republicans in office. We can chalk that up to emotional trading. The vaccines themselves have been great performers. During its most recent quarter, vaccine sales grew 32%.

But if you have some extra room in your portfolio for a bit of a speculation, this is certainly one to put it down on. In fact, it’ll even pay you income while you wait for this potential pharmaceutical consolidation. Right now, GSK yields 5.4%.

Risks To Consider: While GSK recovers from its recent patent expirations, it has seen its sales and bottom line drop. That should slow to a halt soon. But it won’t likely be your fastest growing company any time soon. 

Action To Take: Consider picking up shares of GlaxoSmithKline plc (NYSE: GSK) to position yourself for a potential drug industry consolidation. As U.S. companies continue to face stiffer taxes and public relations assaults, GSK’s address, balance sheet and price tag will begin to look better and better.

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