WEDNESDAY: While bringing in latest negotiation between two drug manufacturers — Pfizer and Allergan — both have terminated their merger worth $ 152 billion. The announcement is believed to be made after introduction of *new regulations by Obama administration to limit American firms from expanding overseas – a strategy opted to lower tax bills, as perceived.
(*The latest regulatory change is assumed to target the Pfizer-Allergan merger, eliminating many of deal’s tax benefits)
“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. As always, we remain committed to enhancing shareholder value.” – Pfizer chairman and chief executive, Ian Read
The decision is believed to be a bonus for Obama administration that had previously announced to discourage all such transactions incling mergers to call off.
INSIGHT: The deal was valuable for Pfizer as it wanted to shed off its U.S corporate citizenship in order to move income beyond the reach of American tax authorities –as, Allergan already had Pfizer’s Irish tax domicile.
An initiative by Obama administration, to tighten regulations on inversions in 2014, had called off several deals; i.e. AbbVie’s acquisition of Shire worth $54 billion. However, those regulatory changes could not solely persuade American companies to retreat pursuing foreign partnership for tax rate reduction. Inversions have gained popularity in recent years, specifically within the pharmaceutical industry, as U.S. companies look onto lower their corporate tax rates. In contrary, Pfizer’s planned merger with Allergan was not an inversion, as per technical term – Allergan would have been the buyer.
Pfizer says that the companies’ rate the latest rule alternation to be as ‘adverse tax law change’ under their deal.
By the time the Pfizer-Allergan merger was announced, multi-specialty healthcare company had grown to have a market cap of about $100 billion. Press releases further revealed Pfizer to bestow upon Allergan, an approx. $150 million – a compensation for transact expenditure.
UPDATE: Dublin-based drug maker, Allergan was largely built through acquisitions of American companies.