Pfizer calls halt to $160bn merger with Allergan: report
06 Apr 2016
US drug major Pfizer has decided to terminate its $160-bn merger with Irish drug firm Allergan, in what would have been the largest-ever merger deal in the pharmaceutical sector, amidst an ongoing drive by the Obama administration to stop tax-dodging corporate mergers.
Pfizer will have to pay a $400-million break-up fee to Botox-maker Allergan, which is run from US but based in Dublin, Ireland, for expenses relating to the deal, Bloomberg News quoted sources as saying.
Under the proposed deal entered into last year, Allergan, which has a legal domicile in Dublin, had agreed to merge with Pfizer in a deal that would have given the New York-based company a Dublin address and a lower tax rate in the United States.
The decision to end the biggest tax "inversion" ever attempted, came a day after the US Treasury unveiled new rules to curb inversions, which proposed tougher-than-expected new rules aimed at making inversions like the Pfizer-Allergan deal harder to achieve.
In an inversion, a US company shifts its tax address overseas, often through a merger. In the case of Pfizer and Allergan, the new company would have been located in Ireland, where taxes are lower than in the US.
While the new rules did not name Pfizer or Allergan, one of their provisions targeted a specific feature of their merger. The new rules would limit companies' ability to participate in inversion transactions if they have been engaged in acquisition sprees within the past 36 months. Allergan has been involved in several such acquisitions within this period.
Allergan had over the past three years made significant acquisitions, including the $66-bn merger with Actavis Plc, the $25 bn purchase of Forest Laboratories and the $5-bn takeover of Warner Chilcott.
The serial acquisition portion of the regulations would have caused Pfizer to be treated as an 'expatriated entity' as per the terms of its existing deal with Allergan, according to analysts.
The decision represents a victory for US President Barack Obama. The collapse of the deal allows Obama to claim a big win during his last year in office.
Earlier on Tuesday, Obama called global tax avoidance a "huge problem" and urged Congress to take action to stop US companies from tax-avoiding corporate "inversions", which lower companies tax bills by relocating overseas.
"While the Treasury Department's actions will make it more difficult... to exploit this particular corporate inversions loophole, only Congress can close it for good," Obama said.
Pfizer has been examining how it might be able to challenge new rules from the US Treasury Department. On Monday, Pfizer Inc and Allergan plc issued a statement regarding the recently issued Department of Treasury Notice:
''We are conducting a review of the US Department of Treasury's actions announced today. Prior to completing the review, we won't speculate on any potential impact.''
Pfizer and Allergan will reportedly announce the termination of their deal on Wednesday, a source familiar with the matter said, asking not to be identified ahead of any official statement.
Besides Pfizer-Allergan, the new rules would have an impact on other pending inversion deals, including the proposed $16.5bn merger of Johnson Controls with Ireland-based Tyco International, Waste Connections' $2.67bn deal with Canada's Progressive Waste Solutions, and IHS' $13bn acquisition of London-based Markit.