The Dublin-based Botox-maker Allergan announced early Wednesday it would abandon its mega-merger with U.S. pharmaceutical giant Pfizer after new government regulations made the tax advantage of the cross-Atlantic deal more difficult to achieve.
The move is a huge victory for the Obama administration in its campaign against inversions, in which U.S.-based companies buy or merge with smaller foreign firms and move their headquarters overseas to lower their tax bills. The Treasury Department released new regulations Monday to stem the tide of such inversions, and Pfizer and Allergan spent two days scrambling to determine whether their merger still made financial sense.
The merger, the largest proposed inversion in history, was expected to lower the pharmaceutical giant’s tax rate significantly, from about 24 percent to 17 percent, and save the company about $35 billion in taxes. But the rules announced late Monday would have made those savings harder to obtain.
In separate press releases, the companies called it a mutual decision, and Pfizer said it agreed to pay Allergan a $150 million breakup fee.
“The decision was driven by the actions announced by the U.S. Department of Treasury on April 4, 2016, which the companies concluded qualified as an ‘Adverse Tax Law Change’ under the merger agreement,’” Pfizer’s statement said.Tax experts say that the Treasury Department’s new rules were broader and more aggressive than was expected. A legal challenge to the regulations may have been successful, they said, but would have taken years to make its way through the courts.
SOURCE: Renae Merle and Carolyn Y. Johnson
The Washington Post