The deal would have been the biggest tax inversion deal ever and would have reduced Pfizer’s global tax rate from 25.5% to an estimated 17% by shifting its address to Ireland, where Allergan is based.
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Pfizer and Allergan won’t be merging after all, the companies announced Wednesday.
On the flip side, corporate leaders have blasted US laws for making it prohibitively expensive to maintain tax headquarters in America – with Pfizer CEO Ian Read among those bemoaning the situation. Both are profitable, have multiple lucrative franchises and strong pipelines of experimental drugs, and have enough cash to turn around and do another deal. AbbVie had to pay Shire a $1.6 billion break-up fee. It accounted for almost half of Pfizer’s sales and profit past year.
Because the deal has now been scrapped, it is unclear how Pfizer would proceed or what short of Plan B the company has in mind.
Nomura analyst Shibani Malhotra wrote that “current share prices do not represent Allergan’s standalone value and (we) would be buyers here”.
Allergan has about 30,000 employees and operations in about 100 countries.
Pfizer had planned to make a decision by 2016 whether to split off its hundreds of generic medicines, but delayed the decision until 2019 after announcing its merger with Allergan.
Mr Read has long voiced the need for Pfizer to create shareholder value by reducing its tax burden and yesterday he left the door open for other mergers by saying that Pfizer had the financial strength and flexibility to “pursue attractive business development and other shareholder-friendly capital allocation opportunities”.
His company has scheduled a morning conference call to discuss its plans and answer questions.
But U.S.-based trash company Waste Connections (WCN) and Canadian Progressive Waste Solutions are still proceeding with their $8.2 billion combination.
But scrutiny from antitrust regulators in multiple countries could delay or even destroy that deal, too. Allergan shares were slightly lower in premarket trading Wednesday following the announcement, while Pfizer shares were slightly higher. The rule is designed specifically to discourage “serial” inversions, where foreign companies combine with a number of US firms and then shift their tax addresses overseas.
Pfizer said it will reimburse Allergan $150 million for costs associated with the transaction.
The Washington Post has more on the break-up of the deal.
Allergan Chief Executive Brent Saunders said on CNBC television that the new Treasury rule would not stop the company from doing other stock-based acquisitions as soon as this fall.
Johnson Controls spokesman Fraser Engerman said the company was reviewing the new Treasury regulations and wouldn’t speculate on what impact they might have on the Tyco deal. These actions took away some of the economic benefits of inverting and helped slow the pace of these transactions, but we know companies will continue to seek new and creative ways to relocate their tax residence to avoid paying taxes here at home. Pfizer had anticipated that the combined company would have had an effective tax rate of approximately 17 to 18 percent by the first full year after closing the merger. They also have become a talking point in the USA presidential campaign, with certain candidates attacking the uprooting of American companies and departure of tax receipts. 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.
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Under the proposed acquisition, Pfizer would have moved its headquarters to Dublin, where the tax bill would have been lower than in the US.
