Allergan, Pfizer confirm termination of $160 billion merger

pharmafile | April 6, 2016 | News story | Business Services, Research and Development, Sales and Marketing  

Botox maker Allergan Plc (NYSE:AGN) and US pharma giant Pfizer (NYSE: PFE) on Wednesday confirmed they have terminated the merger agreement by mutual agreement.

Pfizer has agreed to pay Allergan $150 million for reimbursement of expenses associated with the transaction.

Brent Saunders, Chief Executive of Allergan said the company was “disappointed that the Pfizer transaction will no longer move forward,” and that the new US Treasury rules will have no material impact on the company’s tax rate.

Pfizer’s termination of the $160 billion merger with Allergan pulls down the curtain on the biggest pharma deal that would have created the largest healthcare company in the world, as the US lawmakers take to enforcing stricter rules for corporations trying to dodge taxes.

Ian Read, Chief Executive, Pfizer says: “We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction.”

In November, Ireland-headquarter Allergan agreed to merge with Pfizer in a deal to great the largest healthcare entity in the world. The deal would have also brought down the effective tax rate for Pfizer.

Allergan shares closed down almost 15% to $236.03 Tuesday on the New Your Stock Exchange.

US Regulators: The crackdown

The proposed regulations were announced on Monday by the US Treasury Department with the aim to cut transactions that aid inversions for the corporates if there have been other similar deals over the past three years. For the same period, Allergan has had several similar acquisitions.

Under new regulations targeted at changing the calculation method for anti-inversion penalties for cross-border mergers. In addition, the new rules imply that the tax benefits would be reduced in an inversion scenario in cases where the US stakeholders acquire 60% or more equity in the new, merged firm.

The regulations seem tailored to take on the $160 billion Pfizer, Allergan merger. As things stand the deal does not fulfil the standard requisitions under the new set of rules.

What next for Pfizer?

It is now clear the new regulations wouldn’t have helped Pfizer, grappling with stagnant growth, to cut its tax bill. Pfizer has forecast flat results for the year following five years of revenue decline.

If completed, the deal would have cleared way for the New York based Pfizer to move its headquarters to Dublin, where the taxes are lower than in the US. The rate of corporation tax in Ireland stands at 12.5% against 35% in the US.

Pfizer may look at other potential suiters for the $160 billion that it has ended up saving from the deal termination. In 2014, the company made an offer for the UK drugmaker AstraZeneca (LSE: ANZ), which was subsequently rejected by the latter saying it undervalued the company.

Anjali Shukla

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