Merger of Pfizer and Allergan collapses

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Pfizer has called off its merger with Dublin-based Allergan because of changes to tax rules in the United States. The US$160bn deal, announced in November 2015, would have created the largest pharmaceutical company in the world.

After the proposed merger, Pfizer was planning to keep its global headquarters in the United States but transfer its principal executive team to Ireland, where Allergan has a legal domicile, in a move that would have allowed the company to lower its tax liabilities.

However, on 4 April 2016, the US Department of Treasury announced a crackdown on tax avoiding ‘inversion’ deals. The new rules tightened the restrictions around so-called inversion deals in a way that would have made it difficult for Pfizer to assume an overseas domicile in Ireland, where corporation tax is lower, following a merger with Allergan.

The two companies concluded that the rule change qualified as an “adverse tax law change” under the merger agreement and subsequently called it off. As part of the termination of the merger agreement, Pfizer has agreed to pay Allergan US$150m for reimbursement of expenses associated with the transaction.

Ian Read, chairman and chief executive officer of Pfizer, said the company maintained “the financial strength and flexibility to pursue attractive business development and other shareholder friendly capital allocation opportunities”. This could include selling off its lower-margin unit of older products facing generic competition. “We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016,” he said.

Brent Saunders, chief executive and president of Allergan, said: “While we are disappointed that the Pfizer transaction will no longer move forward, Allergan is poised to deliver strong, sustainable growth built on a set of powerful attributes.”

Last updated
The Pharmaceutical Journal, PJ, April 2016, Vol 296, No 7888;296(7888):DOI:10.1211/PJ.2016.20200974

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