U.S. pharmaceutical major Pfizer Inc agreed to end its $160 billion acquisition deal with the Dublin-based Allergan Plc on Tuesday, reported Reuters. The move came a day after the U.S. Treasury unveiled new rules to curb inversions.
The deal that could have created the biggest tax inversion ever attempted would have seen Pfizer redomicile to Ireland to save paying huge corporate tax in the U.S, the report said. Many U.S. companies have consistently redomiciled overseas in the last few years to lower their companies' tax bills.
The breakdown of the deal comes as a major success to President Barack Obama's effort to curb the rampant tax avoiding inversion deals which had become a trend in the U.S. mergers and acquisitions. The President, a democrat, had doggedly asked the Republican-controlled U.S. Congress for action against inversions. On Monday he welcomed the new rules on inversion.
"While the Treasury Department's actions will make it more difficult... to exploit this particular corporate inversions loophole, only Congress can close it for good," Obama said.
Though the new rules never targeted any company in particular, the termination of Pfizer deal will be symbolic to the U.S. government's stance on tax avoidance on its soil. A clause in the new inversion rules, however, targeted a specific feature of their merger; Allergan's history as a major acquirer of other companies.
"The new rule does not allow stock accumulated through a foreign company's U.S. deals in the last three years to count towards the book value needed to meet the inversion threshold," Reuters reported.
Allergan has closed significant number of deals in the three-year timeframe set by the rules of inversion. It acquired Forest Laboratories for $25 billion, and took over Warner Chilcott for $5 billion. The merger of Allergan and Actavis Plc was $66 billion deal.
"The serial acquisition portion of the regulations will cause Pfizer to be treated as an 'expatriated entity' (under the terms of its existing deal with Allergan)," Robert Willens, a corporate tax and accounting analyst, wrote in a note to Reuters.
A source familiar with the matter told the news agency that Pfizer and Allergan will officially announce the termination Wednesday. It was reported earlier that Pfizer may not want to tweak the agreement to save it from the new inversion rules lest it provokes the U.S. Treasury.
The breakdown may cost Pfizer $400 million as expenses for terminating the deal according to the merger agreement.