But new Treasury rules announced on Monday, tightened the restrictions around so-called inversion deals in a way that would have made it hard for Pfizer to assume an overseas base in Ireland, where corporation tax is lower, following a merger with Allergan.
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U.S.-based drug giant Pfizer Inc., after posting a $9.1 billion profit past year, pulled the plug Wednesday on a massive merger created to slash its tax bill.
Shire has said it is confident its $32bn deal to buy Baxalta will go ahead as planned, despite the abandonment of Pfizer’s merger with Allergan.
As a result of the deal’s failure, Pfizer will pay a $150 million breakup fee to Allergan.
This was Pfizer’s third attempt at an inversion deal with the last attempt being in 2014 when PFE tried to acquire Britain’s AstraZeneca Plc. The merged company would have been headquartered in Ireland, whose 12.5% corporate tax rate is lower than that of the U.S. At $160 billion, the deal would have been among the largest mergers and acquisitions in history.
“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”, he said.
Pfizer has new products coming and plenty of money that it could put to work with acquisitions, though not on the scale of Allergan, said Les Funtleyder, healthcare portfolio manager at E Squared Asset Management in NY, which holds Pfizer shares. “They should be taxed here in the United States”, said Sen.
He agreed that Pfizer benefited from doing business in the U.S. but noted that its competitors benefit also, “and they pay significantly less for the privilege”.
Pfizer maintained that it would continue to consider a separation into two separate companies – one that would sell highly profitable, newer drugs and one that would sell established drugs, likely including off-patent therapies that have generic competition. In 2012 the U.S. drugmaker Watson Pharmaceuticals took over Swiss company Actavis but took on Actavis’ identity and offshore location. According to Forbes, after the Treasury’s announcement, shares in Allergan fell 22% to $217, while Pfizer shares rose to $31.62.
The effective tax rates of 500 major US companies averaged less than 30% in 2015 thanks to clever tax strategies, data from Goldman Sachs and other firms shows. The merger of the companies would have moved Pfizer’s principle executive offices to Ireland and cut Pfizer’s tax rate from 25% to 18%.
Citizens for Tax Justice, a Washington advocacy group, said the Obama Administration’s actions “while good and necessary are only a partial solution”.
The Treasury and many USA politicians, including presidential candidates, have argued that US companies should not be allowed to strike deals to avoid paying taxes.
The Pfizer-Allergan merger drew sharp criticism from USA lawmakers when it was introduced in November past year.
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For tax purposes, the original US company is considered foreign-owned, even if all its operations and officials remain in the country.
