New Tax Rules Put The Kibosh On Pfizer-Allergan Deal

Changes in the tax laws announced by the Treasury Dept. late Monday that  had eyes for the pending acquisition and inversion deal crafted by Pfizer and Allergan last November have had their intended effect. The companies announced early this morning that the $160 billion deal is dead.

“In separate press releases, the companies called it a mutual decision, and Pfizer said it agreed to pay Allergan a $150 million breakup fee,” reports Renae Merle for the Washington Post.



“Pfizer’s board voted Tuesday to halt the combination and the New York-based pharmaceutical company then notified Dublin-based Allergan,” sources told the Wall Street Journal’s Jonathan D. Rockoff, Liz Hoffman and Richard Rubin before the decision was announced.

“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 says in its release this morning.

“One of the regulations makes tax inversions harder and potentially much less profitable for foreign companies that have been involved in multiple deals with U.S. companies over a three-year period, what Treasury officials called ‘serial inverters.’ Allergan was bought in March of last year by Actavis, a one-time New Jersey-based firm that itself had merged in 2013 with an Ireland company,” explains Don Lee for the Los Angeles Times.

“That rule appears to be directed at Pfizer-Allergan,” Adam Rosenzweig, a professor at Washington University School of Law in St. Louis tells Lee. “If the sole purpose [of the merger] was tax-driven, this would probably stop the deal.”

Pfizer’s decision to walk away rather than engage in a potentially costly legal battle “is a victory for the Obama administration, which introduced the initiatives as part of an effort to thwart the ability of companies to move income overseas, beyond the reach of the United States,” write Michael J. de la Merced and Leslie Picker for the New York Times.

Obama voiced strong support for the action yesterday, saying the rules are meant to crimp “one of the most insidious tax loopholes out there, and prevent wealthy corporations from shirking their tax responsibility,” according to an AP report on CBS Money Watch.

“Big corporations are playing by a different set of rules,” Obama said at a brief news conference in the Brady Briefing Room at the White House.

“He argued that the middle-class, as a result of these inversions, are punished because they have to make up for the lost revenue,” the CBS report continues. He also called on the Republican-controlled Congress to take action.

“Only Congress can close it for good and only Congress can make sure that all the other loopholes that are being taken advantage of are closed,” Obama said.

Previous Treasury rulings have scotched deals such as AbbVie’s 2014 bid for the Dublin-based Shire but the new rules are “seen as much more aggressive and expansive, and they sent shock waves up and down Wall Street,” the NYT’s de la Merced and Picker report. They paint a picture of beleaguered attorneys “camped out in conference rooms studying how the new rules would affect their clients.”

There is another side to the story, of course, and we can be sure senior marcomm executives are similarly camped out, honing new ways to tell it and get it circulated.

You may recall that Pfizer CEO Ian Read called the Allergan deal “a great deal for America” in an interview with CNBC’s Meg Tirrell, allowing it to “sustain an investment” of about $9 billion “mainly spent” in the U.S. And, he pointed out, “we have 40,000 combined employees” here.  

In a op-ed piece published on USA Today’ssite last night, Brad Anderson, the former CEO of Best Buy, argues that “inversions might actually create jobs in the U.S.A.” Now a member of the Job Creators Network, Anderson’s main pitch is for lowering the corporate tax rate of 35% (“the highest in the developed world”) and “end[ing] double taxation” by adopting the “system used by other countries where companies pay taxes only on their domestic earnings.”

Allergan, meanwhile, “reiterated its compelling standalone growth profile and strategy following the announced termination of the combination of the two companies,” according to its release this morning. “Allergan is positioned to drive strong, sustainable growth powered by leading franchises, new potential blockbuster product launches and unmatched pipeline.”

Sounds like doing business the old-fashioned way.

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