Pfizer said the decision to walk away from the transaction “was driven by the actions announced by the U.S. Department of Treasury”. Because of the massive size of the merger at $160 billion, the fees associated with managing and overseeing it were estimated to be around $350 million, with Pfizer paying about $120 million to $150 million and Allergan’s advisers splitting $160 million to $200 million.
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The scrapped Allergan merger marks Pfizer’s second failed attempt to use M&A deals to cut its tax bill. That’s a controversial practice in which a US company merges with a firm in a foreign country, such as Ireland, and moves its headquarters there to take advantage of that nation’s lower tax rate.
As such, a significant part of the new rules are tailored to ensure that the deals being made are closer to mergers, rather than a large U.S. company acquiring a smaller one in foreign locations with lower taxes. More than 30% of the 337 executives surveyed said they were “dissatisfied” with the progress so far. And, as an portent of the effectiveness of the Treasury’s action, Monday night after the announcement and after the stock market closed shares in Allergan fell 22 percent and Pfizer shares rose only 2.9 percent.
Companies shouldn’t have been surprised by the Treasury Department’s new regulations aimed at curbing corporate inversions because lawmakers have been working on legislation for years, Rep. Sander Levin (D-Mich.) told CNN Money.
‘We remain focused on continuing to enhance the value of our innovative and established businesses, ‘ Pfizer CEO Ian Read said in a statement.
After agreeing to a merger last November, Pfizer and Allergan had said they structured their combination to fit within USA tax law and federal tax regulations.
Allergan will press ahead as planned with a sale of a substantial portion of its generic drug business to Israel-based Teva Pharmaceuticals, which is expected to be completed in June. In the Pfizer-Allergan deal, the new company would have been located in Ireland.
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In a separate statement, Allergan CEO Brent Saunders, said: “While we are disappointed that the Pfizer transaction will no longer move forward, Allergan is poised to deliver strong, sustainable growth built on a set of powerful attributes”. Under previous rules which still apply, Allergan shareholders needed to own at least 40 per cent of the combined company for the two companies to enjoy the full tax benefits of an inversion, and more than 20 per cent to have any inversion benefit at all. With research reports from more than 720 top consulting and advisory firms, MarketResearch.com offers instant online access to the world’s most extensive database of expert insights on global industries, companies, products, and trends. United States drugmaker AbbVie Inc abandoned its $55 billion takeover of Ireland-domiciled peer Shire Plc in 2014 after the Obama administration cracked down on inversions.
