$160bn Pfizer-Allergan deal under threat from planned US inversion rules

5 Apr 2016

The $160bn merger between Pfizer and Dublin-based Allergan could be under serious threat of falling apart as the US Treasury Department has revealed its plan to begin clamping down on ‘inversion’ tax deals.

The Pfizer-Allergan deal remains one of the most contested mergers in US corporate history, at least from a US governmental sense, as it would make the $160bn deal the largest ‘inversion deal’ to date.

The merger, announced towards the end of last year, is considered highly controversial as the concept of an inversion merger is very much designed to allow a company to profit from lower rates of corporate tax, with this particular deal seeing Pfizer moves its entire taxable operations to Dublin under Allergan to avail of Ireland’s 12.5pc corporate tax rate.

While the move has been mooted as being rather beneficial to Ireland’s Government, lawmakers and potential US presidents have been vocal on this deal, and similar inversion deals, saying they are incredibly damaging to the US’ corporate infrastructure.

Allergan shares drop 22pc

Reuters has now reported that the US Treasury Department has fired across the bow of Pfizer and other companies looking to avail of any inversion mergers in the future by issuing a statement that says that it will now impose a three-year limit on a US company’s ability to stockpile assets ahead of a future inversion deal.

Essentially, this means that any deals made by the Irish-based company Allergan in the three years prior to this deal – such as the Allergan Actavis merger valued at $66bn (€58bn) could not be taken into account in the Pfizer-Allergan merger.

While it has not been passed into law as of yet, and it is not clear the effect the new rules could have on the Pfizer-Allergan deal, fears over this new caveat to inversion deals has seen shareholders panic with a drop of 22pc in Allergan shares since the announcement.

Being one step ahead of companies

“Treasury has taken action twice to make it harder for companies to invert,” said Treasury Secretary Jacob J. Lew in the department’s statement.

“These actions took away some of the economic benefits of inverting and helped slow the pace of these transactions, but we know companies will continue to seek new and creative ways to relocate their tax residence to avoid paying taxes here at home.”

Lew has now called on Congress in the US to move ahead with this proposed legislation and enact it later this year, which could very well scupper the merger between the two pharmaceutical heavyweights.

US Congress building image via Shutterstock

Colm Gorey was a senior journalist with Silicon Republic