The collapse of Pfizer’s $160bn merger with Allergan yesterday brought the total value of abandoned deals this year to its highest since the eve of the financial crisis and sent shockwaves through corporate America.
The decision to terminate the largest tax inversion deal in history marked a watershed victory for an interventionist Washington and left the US drugmaker scrambling to re-evaluate its strategy.
The abrupt end of Pfizer’s turbulent three-year hunt for a deal to escape the US tax authorities came as government intervention left a second big deal in doubt. The US Department of Justice sued to block Halliburton’s proposed $25bn takeover of rival oil-services group Baker Hughes. Halliburton is contesting the suit.
The implosion of the Pfizer-Allergan merger brought the value of deals withdrawn so far this year to $376bn — the highest since 2007 by deal value, when $405.9bn of transactions were scuppered, according to Dealogic.
Pfizer’s board voted to abandon the blockbuster deal after the US Treasury unveiled proposals that appeared designed to remove the lucrative benefits of its planned inversion, said one person familiar with the matter.
Pfizer was seeking to escape the high US corporate tax rate by shifting its address to low-tax Ireland, where Allergan is domiciled, but the Treasury’s plans aim to wipe out the advantages that “abusive” inverters seek.
They delivered a crushing blow to Ian Read, Pfizer’s chief executive. Several Pfizer investors questioned how he could have misjudged the mood in Washington, saying he had become increasingly confident of the deal’s prospects in recent weeks.
The drugmaker said it would now decide by the end of this year whether to split off its “established products” division, which sells generic medicines, and its “innovative” patent-protected medicines unit.
Pfizer stood to escape US tax on more than $128bn of profits stored abroad. The group, which had agreed to pay a break fee of up to $400m, will pay $150m to cover Allergan’s expenses.
A person close to Pfizer said its board believed the administration was ready to do anything to block the deal so felt it had no choice but to abandon the merger. Challenging the ruling in the courts would have injected a level of uncertainty that would have been hard for shareholders to tolerate, the person added, describing the Treasury’s move as “pretty extraordinary” as it appeared to target one specific deal.
Brent Saunders, Allergan chief executive, said that while the company was disappointed that the deal would not happen, Allergan was “poised to deliver strong, sustainable growth”.