Last year Pfizer inked its long-rumoured deal to buy botox maker Allergan, in what was described as the biggest pharmaceuticals deal in history. As the White House cracks down on tax loopholes, Pfizer is reported to have abandoned the deal
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The move would’ve allowed Pfizer to store some of its profits abroad and in effect avoid US taxes.
But this week the US Treasury issued new plans to limit tax inversions – deals in which US firms seek to merge overseas companies and take profits abroad, side-stepping US tax rates. While there is no official word as yet from either company, major news outlets are citing ‘people familiar with the matter’ that the deal has now been scrapped.
According to the BBC, Pfizer will have to pay up to $400m in expenses for ending the merger – this had been written into the agreement previously.
Pfizer had planned to have its global operational headquarters in New York and its principal executive offices in Ireland.
Predicting that the deal would fall through, Professor John Colley of Warwick Business School said: "The move to limit tax inversions by the US government has wiped $20 billion off the share price of Allergan which broadly equates to the tax benefit arising from Pfizer merging with Allergan.”
From an R&D perspective, Pfizer stood to gain access to new molecular entities and product line extensions.
When the deal was initially struck, Pfizer’s statement said: “A combined pipeline of more than 100 mid-to-late stage programs in development and greater resources to invest in R&D and manufacturing is expected to sustain the growth of the innovative business over the long term. Through product approvals, launches and inline performance the combined company aspires to be a leader in growth.”
However these incentives evidently didn’t hold enough appeal to shareholders, and the deal has now been pulled, according to reports.
Colley continued: "Other than the tax benefits it was never clear what other benefits really existed in the deal. Pfizer does need growth prospects and Allergan did offer some better prospects than Pfizer as Pfizer is struggling for significant new drugs and has large cash piles which cannot be repatriated to the US and shareholders for tax reasons.
"US businesses will have to rely on more conventional benefits to justify their overseas merger plans."