APR 06, 2016
U.S. drug maker Pfizer yesterday agreed to end its $160 billion agreement to acquire Allergan the day after the U.S. Treasury announced new rules to stop tax-dodging corporate mergers.
The new rules limit “inversions” – the practice of moving U.S. companies outside the country to lower its tax bill – by prohibiting companies that have participated in one within the past 36 months. Dublin-based Allergan had been involved in several such acquisitions during that time frame.
Pfizer will pay Allergan a breakup fee of $150 million to end the biggest tax inversion ever attempted. The deal was expected to lower Pfizer’s tax rate from about 24% to 17%, and save the company about $35 billion in taxes.
The decision is a major victory for the Obama administration’s campaign to stop tax-dodging corporate mergers. On Tuesday, President Obama called global tax avoidance a "huge problem" and urged Congress to take action to stop U.S. companies from deals that allow it.
"It really looked like they did a very fine job at constructing a temporary rule to stop this deal and obviously it was successful," said Brent Saunders, CEO of Allergan. He added that the new Treasury rule would not stop the company from conducting other stock-based acquisitions as early as this fall.
Allergan will proceed with the $40.5 billion sale of its generic drug business to Israel's Teva Pharmaceutical Industries. It expects the transaction to close by June.
Pfizer said it is still evaluating a plan to spin off its many generic medicines into a separate business, according to the press release.