The termination of the Pfizer-Allergan merger marks an important turning point for multinational corporations’ tax strategies.
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Pfizer confirmed in a statement that the “decision was driven by the actions announced by the US Department of Treasury”.
The tie-up would have been the largest inversion deal in corporate history, a tax-saving manoeuvre in which a USA company reorganises in another country with a lower corporate tax rate.
In ending the deal, Pfizer said it would pay Allergan the Botox maker $150 million to reimburse it for any expenses that were associated with the deal. AbbVie had to pay Shire a $1.6 billion break-up fee.
However, now that the merger deal is canceled, Pfizer said it would make the separation decision “by no later than the end of 2016”. It accounted for almost half of Pfizer’s sales and profit previous year.
Read has been vocal in his desire to move the company’s tax basis to a more tax-friendly jurisdiction. As the Panama Papers scandal is making clear, tax evasion is a global problem that contributes to inequality on a grand scale.
This meant that almost $100 million worth of Allergan’s U.S. acquisitions over the last three years – which ultimately inflated the company’s size and shrunk Pfizer’s ownership stake – did not count as part of the inversion process.
Pfizer and Allergan “have been serial acquirers in healthcare and both have significant financial firepower”, BTIG analyst Hartaj Singh said.
His company has scheduled a morning conference call to discuss its plans and answer questions. That deal may be delayed due to scrutiny from antitrust regulators in multiple countries. Allergan shares were slightly lower in premarket trading Wednesday following the announcement, while Pfizer shares were slightly higher. The statement follows the US Treasury’s move to clamp down on tax inversion deals which earlier this week prompted Pfizer to drop its merger with Dublin-based Allergan.
Pfizer cited the new regulations in scuttling its deal.
New rules from the U.S. Treasury Department make it more hard to use acquisitions as a way to move U.S. company headquarters overseas to take advantage of jurisdictions with more favorable tax rates.
This practice of changing a tax residence while maintaining core operations in the USA has been widely criticized by the Obama administration as well as presidential candidates like Hillary Clinton and Donald Trump for eroding the United States tax base.
The news is seen a win for President Barack Obama who has been backing the Treasury’s rules on such deals, called inversions.
A marriage would have created the world’s largest pharmaceutical company and allowed Pfizer to trim its tax bill by an estimated $1bn annually.
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A logo outside the Pfizer headquarters in New York, USA, December 4, 2015.
