In the Pfizer-Allergan deal, the new company would have been located in Ireland.
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Pfizer said it would pay Botox-maker Allergan $150 million “for reimbursement of expenses associated with the transaction”. The rules around inversions are complex but largely focus on how much of the new merged business must be owned by the USA buyer in order for it be classed as foreign.
Shares of both Pfizer and Allergan were up about 3 percent Wednesday morning after its announcement that the deal between them fell through.
“Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies”, said Pfizer CEO Ian Read in a statement announcing the merger’s termination.
“Americans will continue to watch their jobs move overseas until Washington works together on comprehensive, pro-growth tax reform”, he said in a statement, adding that his committee would introduce legislation that encourages business to locate and invest in the US.
It could have been one of the biggest deals in history: the $160 billion merger between pharmaceutical giants Pfizer and Allergan.
In an inversion, a big company buys a smaller one in another country, usually with a lower tax rate, then moves the combined company’s address on paper but little else to that country.
“If the rules can be changed arbitrarily and applied retroactively, how can any US company engage in the long-term investment planning necessary to compete?” he asked.
Pfizer would have pocketed an estimated $1bn a year as a result of the deal, but Ireland would have gained from higher tax payments and income for law firms and accountants here, who play a crucial role facilitating the creation of new structures under Irish company law.
The Pfizer deal was particularly targeted by the new Treasury rules because Allergan itself had been built on previous inversion deals.
He said to solve the tax inversion problem – where billions of dollars leave this country – Congress must take on meaningful tax reform.
The decision to ditch the deal represents a victory for President Barack Obama, whose administration has pledged to make inversions harder to achieve and less beneficial from a tax standpoint.
The US Treasury Department announced on Monday changes to rules under which deals could be classified as “tax inversions”, which meant it was no longer as economically attractive for the deal to take place.
The Pfizer logo seen here in the company’s NY headquarters.
“Read shouldn’t be the fall guy”, agreed Tony Scherrer, director of research at Smead Capital Management, a longtime holder of Pfizer shares.
Pfizer made an offer to buy United Kingdom drugs group AstraZeneca in 2014.
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According to an estimate from Congress, all but ending inversions and clamping down on the practice known as earning stripping would generate $90 billion additional tax revenue from corporations over the next decade.
