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US tax changes claim Pfizer scalp as Allergan deal abandoned

Firm walks away from record-breaking $160bn merger after planned inversion rule changes released
Pfizer

Pfizer has abandoned its massive $160bn merger with Ireland's Allergan after the US laid out new plans to tackle corporate tax inversion deals earlier this week.

The mega-merger would have created the world's largest pharma company, valued at around $330bn, but relied on the US firm benefiting from Ireland's lower corporate tax rate.

Pfizer's chief executive Ian Read has previously said that the pharmaceutical giant is not afraid of taking “bold steps”, but neither it seems is the US Treasury Department.

Obama's administration set out on Monday plans for new tax inversion rules designed to target loopholes allowing US companies to move to low-tax jurisdictions.

Pfizer had planned to combine with Allergan as 'Allergan' and then be renamed Pfizer, with Ireland as its legal domicile, reducing its corporate tax rate from around 25% to 17-18%. However, the company's operational hub would have remained in New York.

But under the new US rules, acquisitions made within three years of the proposed deal are no longer taken into consideration when considering the size of the parties involved.

So for Allergan - formerly known as Actavis, its acquisitions of Warner Chilcott in 2013, Forest Laboratories in 2014 and Allergan in 2015 that turned it into a $109bn company would be ignored.

Consequently Allergan would not meet the requirement for having a stake of more than 20% within a Pfizer-Allergan combination, thus negating the corporate tax perks for both sides.

Pfizer had stood to avoid US taxation on over $128bn in profits stored abroad through the proposed merger.
While in a statement the White House said the new rules were not calculated to target any individual merger deal, pharma's biggest ever M&A deal would clearly have been on their minds.

In a statement Pfizer said: “The decision was driven by the actions announced by the US Department of Treasury on April 4, 2016, which the companies concluded qualified as an 'Adverse Tax Law Change' under the merger agreement.”

The firm added that the deal had been terminated by mutual consent between itself and Allergan.

Pfizer will now have to pay a break fee of $150m to Allergan - less than expected and a fraction of the $1.6bn paid out by AbbVie after the collapse of its planned tax inversion deal with Shire in 2014.

Ian Read, Pfizer's chairman and CEO, said: “Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies.

“We remain focused on continuing to enhance the value of our innovative and established businesses.”

He confirmed that a decision on whether to separate its innovative and established businesses was still due to be made before the year of the year.

On behalf of his company Allergan's chief executive Brent Saunders said “we are disappointed that the Pfizer transaction will no longer move forward”.

He added: "I would like to thank our more than 30,000 global employees for their continued focus and dedication to our business during a time of incredible transformation for our company.”

Article by
Dominic Tyer

6th April 2016

From: Sales

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