The deal, which was announced last November, would have been the biggest of its kind, a tax inversion that would allow a company in the U.S.to shed its corporate citizenship in the U.S.to move its income out of the reach of tax authorities in the U.S. Allergan maintains an Ireland tax domicile.
Advertisement
Pfizer said the companies determined that the latest rule changes qualified as an “adverse tax law change” under their merger agreement.
The scrapped Allergan merger marks Pfizer’s second failed attempt to use M&A deals to cut its tax bill.
Besides Pfizer-Allergan, other pending inversion deals that have not yet closed include the proposed US$16.5 billion merger of Johnson Controls with Ireland-based Tyco International.
Obama on Tuesday called inversions “one of the most insidious tax loopholes out there”, while Democratic presidential contenders Hillary Clinton and Bernie Sanders and Republican candidate Donald Trump have been particularly critical of inversions, albeit for divergent political reasons.
The Treasury rules did not name Pfizer and Allergan but one of the provisions targeted a specific feature of their merger, specifically Allergan’s history as a major acquirer of other companies.
Obama spoke a day after the US Treasury tightened rules against tax “inversion” deals, in which US companies merge with foreign firms to move their official address offshore – but not their US operations – to avoid paying US taxes. Conversely, Allergan shares fell almost 15 percent Tuesday and were lower by another 1.28 percent in pre-market trade Wednesday.
Allergan still plans to peddle its generic drug business to Israel’s Teva Pharmacueticals Industries Ltd., the world’s top generic drugmaker, for $40 billion. The deal is expected to close by June. Pfizer’s revenues for 2015 totaled nearly $50 billion.
The Pfizer office in Dublin, Ireland.
“These earnings were earned here in the United States”. It’s also in the final stage of patient testing of Rapastinel, a new type of depression drug.
“Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies”, said Ian Read, Chairman and CEO of Pfizer. He declined interview requests. He kept his “Buy” recommendation on Pfizer, adding, “We need a clearer vision of what “Plan B” might be”.
Pfizer has endured years of relentless pressure from analysts and others to break up the company so growth and profits could accelerate. The deal would have burnished Pfizer’s drug portfolio and created a pharmaceutical giant, with a strong line-up ranging from advanced cancer treatments to generics.
Legal loopholes in the tax code can “come at the expense of middle class families because that lost revenue has to be made up somewhere”, Obama said.
Advertisement
Shire has said it does not expect its $32bn merger with Baxalta, announced in January, to be affected by the new rules. But tax experts warn that the rules could also punish companies that have already completed those kinds of so-called inversion deals.
