Just one day after the US Treasury Department announced it was looking to clamp down on inversion tax deals, it has been announced that the planned $160bn merger between Pfizer and Dublin-based Allergan has been abandoned.
The Pfizer-Allergan deal has been one of the most intensely debated mergers in US corporate history, as it appeared that the former was looking to avail of what is known as an inversion deal, which would allow it to merge with Allergan, with Pfizer thereby moving its taxable operations to Ireland, allowing it to pay tax on its profits at our low 12.5pc corporate tax rate.
However, yesterday, the US Treasury Department released a statement saying that, without specifically naming the Pfizer-Allergan deal, it would be lobbying the US Congress to pass a motion that would significantly clamp down on US companies entering into inversion mergers with international companies.
One of the clauses of this ruling, if passed into law by the US government, would have greatly affected Pfizer and Allergan as the latter’s previous $66bn merger with Actavis would not be able to be included in this latest merger with Pfizer.
Pfizer to pay break-up fee to Allergan
Now, according to the Wall Street Journal, this latest move to clamp down on such inversion deals has been considered a step too far for the Pfizer board on what was already a complex deal and it has now decided to abandon the merger.
Given that the pair had reached a formal agreement between themselves already, those close to the deal said that Pfizer will now pay Allergan a ‘small’ break-up fee that will cover at least some of the agreed $400m expenses claim Allergan agreed with Pfizer in the event of a break-up.
The pair is expected to make a joint statement later this morning revealing the reasons behind the decision.
Meanwhile, a number of other companies are now finding themselves under scrutiny for similar inversion deals, particularly the proposed merger between the Ireland-based Tyco and Johnson Controls valued at $16.5bn, as well as the $13bn purchase by IHS of Markit.
Interior of the Federal Hall National Memorial image via Anton_Ivanov/Shutterstock