Daily Management Review

$160 Billion 'Inversion' Deal Between Pfizer and Allergan Scrapped


Following possibility of derailment of the deal after the US Treasury announced new rules for preventing “inversion” of US companies, the proposed  $160 billion merger deal between U.S. drugmaker Pfizer Inc and Ireland-based Allergan Plc was formally announced to be scrapped on Wednesday.
This is being viewed as a big win for President Barack Obama who has been instrumental in the attempt of the US government to curb tax-slashing "inversion" deals.
On Monday the US Treasury had announced a set of new rules to curb such deals. By redomiciling to Ireland, the New York-based Pfizer would have been allowed by the merger to cut its tax bill. Tax rates in Ireland are much lower.
$150 million would be paid as reimbursement by Pfizer to Allergan in lieu of expenses related to the deal.
Allergan said it would update on its plans to simplify its operations after the close of its $40.5 billion deal to sell its generic drug business to Israel's Teva Pharmaceutical Industries soon after the company announces its report for the first quarter by May 10.
The deal for its generic drug business is expected to close by June.
One of the provisions targeted a specific feature of the merger between Pfizer and Allergan - Allergan's previous history as a major acquirer of other companies even as the new Treasury rules did not name Pfizer and Allergan in any specific manner.
Obama, who is in his last year as President in office, can claim a major victory for the collapse of what would have been the biggest-ever inversion deal.
On Tuesday, Obama urged Congress to take action to stop U.S. companies from tax-avoiding deals and called the global tax avoidance a "huge problem".
There were reports in the industry that new rules by the Treasury would be provoked by any efforts or tweaks by Pfizer to salvage its deal with Allergan.  
This is not a first time that a merger has been derailed by a tightening of the U.S. inversion rules.
After the Obama administration cracked down on inversions in 2014, the U.S. drugmaker AbbVie Inc abandoned its $55 billion takeover of Ireland-domiciled peer Shire Plc. AbbVie had to pay Shire a $1.6 billion break-up fee.
Meanwhile, benefiting from the pull out by Pfizer from the deal with Allergan, Britain's top share index move higher on Wednesday as there were heightened speculations over other merger and acquisition activity in the pharma sector.
Traders said the sector was rallying on the possibility that British pharma companies might be back in play due to the new rules of the US treasury even though it is still unclear the extent to which a bid from Pfizer for a UK-listed drugmaker would fall foul of new U.S. Treasury rules to curb so-called tax inversion deals.
"The possibility now is that Pfizer goes shopping again, and you might be prepared to develop a case that maybe a firm like Shire becomes the bid target. The implications of the new rules would have to be worked out, but if you've got cash sloshing around the sector, people are wondering who will benefit," said Chris Beauchamp, market analyst at IG.

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