US drug maker Pfizer Inc on Tuesday agreed to terminate its US$160 billion agreement to acquire Botox maker Allergan PLC, in a major victory for US President Barack Obama’s drive to stop tax-dodging corporate mergers.
The decision to end the biggest tax “inversion” ever attempted, which would have seen Pfizer slash its tax bill by redomiciling to Ireland where Allergan is registered, came a day after the US Department of the Treasury unveiled new rules to curb inversions.
While the new rules did not name Pfizer and Allergan, one of their provisions targeted a specific feature of their merger: Allergan’s previous history as a major acquirer of other companies. The subsequent demise of the deal allows Obama to claim a big win during his last year in office.
Photo: Bloomberg
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 redomiciling 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 and Allergan were to announce the termination of their deal yesterday, a source familiar with the matter said, asking not to be identified ahead of any official statement. Pfizer and Allergan declined to comment.
Pfizer was concerned that any tweaks to salvage the inversion might have provoked new rules by the US Treasury, and so was leaning earlier on Tuesday to end the deal, a source had earlier said.
Pfizer will have to pay Allergan up to US$400 million for its expenses as a result of terminating the deal, according to their merger agreement.
Pfizer shares had ended trading in New York on Tuesday up 2 percent on hopes the company would walk away or renegotiate the deal in its favor. Allergan shares closed down 14.8 percent to their lowest level since October 2014.
Besides Pfizer-Allergan, other pending inversion deals that have not yet closed include the proposed US$16.5 billion merger of Johnson Controls Inc with Ireland-based Tyco International PLC, Waste Connections Inc’s US$2.67 billion deal with Canada’s Progressive Waste Solutions Ltd, and IHS Inc’s US$13 billion acquisition of London-based Markit Ltd.
Without Allergan’s new, fast-growing medicines, Pfizer may need to look for other companies with attractive products, such as US drugmakers Biogen Inc, Regeneron Pharmaceuticals Inc and AbbVie Inc, said Raghuram Selvaraju, managing director of brokerage H.C. Wainwright.
Pfizer, which announced the deal in November last year, had said its tax rate would drop to about 17 or 18 percent after the deal, from about 25 percent. That would have represented more than US$1 billion in annual cost savings.
This is not the first time a tightening of the US inversion rules have caused a merger to unravel. US pharmaceutical company AbbVie abandoned its US$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 US$1.6 billion breakup fee.
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