Pfizer, Allergan scrap $160 billion deal after U.S. tax rule change

Wed Apr 6, 2016 2:19pm EDT
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By Caroline Humer and Ankur Banerjee

(Reuters) - U.S. drugmaker Pfizer Inc (PFE.N: Quote) and Ireland-based Allergan Plc (AGN.N: Quote) walked away from their $160 billion merger on Wednesday, a major win for President Barack Obama, who has been pushing to curb deals in which companies move overseas to cut taxes.

Pfizer said the decision was driven by new U.S. Treasury rules aimed at such deals, called inversions. The merger would have allowed New York-based Pfizer to cut its tax bill by an estimated $1 billion annually by domiciling in Ireland, where tax rates are lower.

While the new Treasury rules did not name Pfizer and Allergan, one of the provisions targeted a specific feature of their merger - Allergan's history as a major acquirer of other companies.

Allergan Chief Executive Brent Saunders said on CNBC television that the new Treasury rule would not stop the company from doing other stock-based acquisitions as soon as this fall. The new Treasury rule takes into account the past three years of a company's deals.

"It really looked like they did a very fine job at constructing a temporary rule to stop this deal and obviously it was successful," Saunders said.

Saunders said that he would stay to run the standalone company with a focus on both deals and research and development. Allergan will also move ahead with plans for its $40.5 billion sale of its generic drug business to Israel's Teva Pharmaceutical Industries (TEVA.TA: Quote). It expects the transaction to close by June.

With the deal behind it, Pfizer said it would decide this year about whether to split off its hundreds of generic medicines into a separate business. It had put off making that decision until 2019 after announcing its deal with Allergan last November.

Pfizer will pay Allergan $150 million to reimburse expenses from its deal.   Continued...

Allergan CEO Brent Saunders gives an interview on the floor of the New York Stock Exchange (NYSE) April 6, 2016. REUTERS/Brendan McDermid