$210 billion Pfizer-Allergan deal dumped: new tax rules issued

At $A210 billion, it would have been the largest ever pharmaceutical industry deal, with Pfizer set to save billions of dollars in tax. The merger would have moved Pfizer’s official headquarters to Ireland and created the world’s largest drug manufacturer.
The tie-up between the two companies was a target in the run-up to the US presidency election, with both the Docrats and the Republicans criticising the deal.
Furthermore, President Barack Obama called corporate inversions, in which a US company buys a foreign company and adopts its lower-tax jurisdiction, one of the “most insidious tax loopholes out there”.
The probl, Mr Obama said, wasn’t that companies were engaging in illegal activity, but what was legal in the first place.
In the eyes of Treasury, Allergan would have been too small to be Pfizer’s inversion partner.
Before Treasury stepped in, the deal would have satisfied Pfizer chief executive officer Mr Ian Read’s reported long-time quest to cut its tax rate with an overseas move in order to minimise tax payable in the US and also to gain access to billions of dollars of revenue kept overseas to avoid US taxes on top of the taxes already paid in foreign countries.
There were also to be non-tax benefits for Pfizer, including access to Allergan’s portfolio of strong products such as anti-wrinkle treatment Botox and dry-eye treatment Restasis.
Because Treasury’s new rules qualified as an “adverse tax law change” under their merger agreent, Pfizer’s break-up penalty is small, the company having agreed to pay Allergan $US150 million ($A210 million) to reimburse expenses associated with the transaction, Allergan said in a 6-April announcent.
The deal’s collapse is a disappointment on both sides, but some suggest that fans of a Pfizer split-up might take consolation in the company now planning to decide by year’s end whether to break into two separate businesses.
That’s back to Pfizer’s original timeline for a breakup decision, Mr Read said in a statent. The company had put off that deadline to 2018 after agreeing to buy Allergan.
The company will also resume looking for acquisition prospects and will pursue “other shareholder friendly capital allocation opportunities,” Mr Read said.
Allergan CEO Mr Brent Saunders, who would have been in line to take Mr Read’s job down the line if the deal had gone through, said his company is well able to deliver growth on its own. It will also have plenty of firepower to make deals, particularly after it wraps up sale of its generics business to Teva for $40.5 billion, he said.
Allergan also said that the new Treasury rules shouldn’t affect its own tax rate. The company’s own tax headquarters moved to Ireland less than three years ago with the acquisition of Warner Chilcott.