Pfizer Inc. and Allergan Plc on Wednesday terminated their $160 billion merger agreement in the wake of new regulations released by the U.S. Treasury to crack down on corporate tax inversions, ending the largest tax inversion attempted to date. Allergen, which is run from New Jersey but has a legal domicile in Dublin, agreed last year to merge with Pfizer in a deal that would have given Pfizer an Irish address and a lower tax rate.
The United States has the highest corporate tax rate in the developed world and inversions, where U.S. companies shift their tax address overseas, often through a merger, lowers the company’s tax bills. Both Pfizer and Allergan indicated that the Treasury had overstepped its authority with the new rules on inversions, but neither company wished to launch litigation against the U.S. government.
“It would have been a long, protracted, expensive fight” said Allergan Chief Executive Officer Brent Saunders during an interview with Bloomberg TV. “Perhaps we could have won, but that’s not a fair position to put our shareholders in, particularly when our stand-along prospects, our growth prospect, our pipeline is so strong.”
Pfizer, which announced the deal in November, had said its tax rate would drop to about 17 or 18 percent after the deal closed, from around 25 percent, representing more than $1 billion in annual cost savings. Pfizer will pay Allergen up to $150 million to reimburse for expenses associated with the termination of the deal.
This is not the first time tightening of the U.S. inversion rules have cause a merger to be terminated. U.S. pharmaceutical company AbbVie Inc.abandoned its $55 billion takeover of Ireland-domiciled peer Shire Plc after the Obama administration cracked down on inversions in 2014. AbbVie had to pay Shire a $1.6 billion break-up fee.
Pfizer said it will decide whether to pursue a potential split of the company by no later than the end of this year. The split would probably involve two parts–one focused on new drug development, and the other on selling older medications.
Meanwhile, Allergan CEO Brent Saunders told Bloomberg TV that “we’re going to go and look to find assets that complement and increase our growth profile.”
