Pfizer has decided to terminate its $160b merger with Allergan, marking an end to the largest-ever health-care acquisition as officials in Washington crack down on corporate tax inversions.
Pfizer will need to pay a $400m break-up fee to Botox-maker Allergan for expenses relating to the deal.
Allergan, which is run from New Jersey but has a legal domicile in Dublin, last year agreed to merge with Pfizer in a deal that would have given the New York-based company a foreign address and a lower tax rate.
The decision represents a victory for US President Barack Obama, whose administration on Monday 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.
The Treasury Dept said on Monday that 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 in that time frame.
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.
Pfizer had been examining how it might be able to challenge new rules from the US Treasury Department, it was claimed.
Pfizer has said it has strategic reasons for pursuing the acquisition, though it would also help the company escape the US’s 35pc corporation tax rate, which applies to profits made anywhere in the world.
Ever since a tax-law change in 2004, the main way that US companies have been able to claim a foreign address has been to buy a smaller company abroad and adopt its domicile. The law requires the foreign company to be at least one-fifth the size of the US one. Monday’s proposed rule tightens that restriction by saying that if a foreign company has bulked up through mergers with other US companies in the last three years, as Allergan has, that additional bulk isn’t counted toward its size.
Treasury officials have said they weren’t targeting any particular taxpayers with the new rule.
“It is fair to say the administration would be pleased if corporate inversions that happened solely so corporations don’t pay their fair share won’t go through,” Josh Earnest, a White House spokesman, said Tuesday during a press briefing.