Pharmaceutical company Pfizer has scrapped a planned merger with Ireland’s Allergan amid plans to change US tax laws.
The decision comes two days after the US Treasury announced fresh plans to prevent deals known as “inversions”, where a US company merges with another company in a country with a lower tax rate.
The Pfizer-Allergan deal, valued at $160 billion, would have been the biggest example of an “inversion”.
It would also have been the biggest pharmaceutical deal in history.
Pfizer said the move was “driven by the actions announced” by the US Treasury.
The company’s chairman and chief executive Ian Read said: “Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies.”
He added that the company could look at splitting off part of the business.
“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, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction.”
Pfizer said it would pay Botox-maker Allergan $150 million “for reimbursement of expenses associated with the transaction”.
Under the proposed acquisition, Pfizer would have moved its headquarters to Dublin, where the tax bill would have been lower than in the US.
The corporation tax rate in the Republic of Ireland is 12.5%, compared with 35% in the US.
On April 5, President Barack Obama weighed in on the inversion trend, saying “these companies get all the rewards of being an American company without fulfilling their responsibility to pay their fair share of taxes”.
In 2014, American fast-food chain Burger King bought Canadian coffee and doughnut chain, Tim Hortons. The merged group moved to Ontario in Canada, where the corporate tax rate is at 26.5%.
Analysts had said that Pfizer needed to look at acquisitions to help grow its business and revenue.
Pfizer made an offer to buy UK drugs group AstraZeneca in 2014.
However, AstraZeneca rejected the offer, arguing it undervalued the company.
Pfizer has sealed a deal to buy Botox-maker Allergan for $160 billion in what is the biggest pharmaceuticals deal in history.
The takeover could allow Pfizer to escape relatively high US corporate tax rates by moving its headquarters to Allergan’s Dublin base.
The merged company will be the world’s biggest drug maker by sales.
Allergan shareholders will receive 11.3 shares in the new company for each of their Allergan shares.
Pfizer shareholders will receive one share for each of their shares in that company.
Pfizer’s shares closed down 2.7% in New York at $31.32, while Allergan fell 3.4% to $301.70.
Hillary Clinton, the Democratic presidential hopeful, said inversion deals like Pfizer’s would “leave US taxpayers holding the bag” and called on Washington to ensure that the biggest companies “pay their fair share”.
Senator Bernie Sanders, another Democratic hopeful, said the deal would be a disaster for consumers and allow another major US company to hide its profits overseas.
Republican presidential candidate Donald Trump described Pfizer’s departure from the US as “disgusting”, adding: “Our politicians should be ashamed.”
The merged business will be called Pfizer Plc. The companies said they expected the deal to be completed in the second half of 2016, subject to regulatory approval in the US and Europe.
Pfizer said it expected the merger to result in savings of $2 billion in the first three years.
The company’s CEO Ian Read will be chief executive and chairman of the merged company, with Allergan boss Brent Saunders becoming president and chief operating officer.
“The proposed combination of Pfizer and Allergan will create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and more therapies to more people around the world,” said Ian Read.
Critically, the terms of the deal propose that the merged company will maintain Allergan’s Irish domicile. This means the profits of the new company would be subject to corporation tax of 12.5% – much lower than the 35% Pfizer pays in the US.
In 2014, Pfizer made an offer to buy AstraZeneca in a move that analysts said was designed to reduce Pfizer’s tax bill. The UK pharmaceutical giant rejected the bid, arguing it undervalued the company.
The deal is the latest in a series of mergers and acquisitions in the sector, as pharmaceuticals companies struggle to cope with patents on a number of major drugs expiring.
Allergan has confirmed it has held preliminary talks about a takeover by pharmaceutical giant Pfizer.
The Dublin-based Botox-maker said no agreement had been reached and there was “no certainty that these discussions will lead to a transaction”.
Allergan shares were up more than 6% on October 29 trading in New York.
Analysts said Pfizer needed to boost profits and may be looking to escape relatively high US corporate tax rates by moving its headquarters to Dublin.
“Allergan today confirmed that it has been approached by Pfizer Inc. and is in preliminary friendly discussions regarding a potential business combination transaction,” the company said in a statement.
“The company will not comment on speculation regarding the terms of a potential transaction.”
The talks were first reported in the media on October 28.
In 2014, Pfizer made an offer to buy another UK drugs group, AstraZeneca, but Astra rejected the offer, arguing it undervalued the company.