Pfizer, Allergan Agree To Terminate US$160Bn Merger

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Pfizer, Allergan Agree To Terminate US$160Bn Merger by Kevin Dowd, PitchBook

Recent years have seen a spate of so-called corporate inversions, when an American company merges with a foreign business and moves its headquarters overseas in order to reduce tax payments. The largest by far was the agreed-upon $160 billion merger between pharma giants Pfizer (NYSE: PFE) and Allergan (NYSE: AGN). In November, the two companies announced plans to merge, with PFE relocating its legal residence to Ireland and saving $2 billion on its U.S. tax bill in the process.

But the merger was terminated this morning due to new rules imposed earlier this week by the U.S. Treasury Department designed to curb corporate inversions and the earnings stripping that comes with such transactions. On Tuesday, President Barack Obama spoke out against corporate inversions, describing them as “insidious.”

Pfizer will reportedly pay Allergan a breakup fee of $150 million.

The Heritage Foundation’s Curtis Dubay told ValueWalk:

Here are the things Curtis has said regarding the new Treasury rules and corporate inversion:

  • In response to the Pfizer deal…Treasury went nuclear. It released a third set of rules this week that are exponentially stronger. They don’t aim to fix the problems with the business tax system. Their aim is clearly to stop the Pfizer deal.
  • The Obama administration is probably happy to have stopped the Pfizer deal. However, the business tax system remains a burden on U.S. businesses, and that means American workers continue to suffer from fewer jobs and lower wages because the Obama administration won’t work in good faith with Congress to fix it.
  • The new rules stopped the Pfizer deal because they were retroactive and their effect was obviously tailored to fit the facts and circumstances of this particular deal. This is an abuse of Treasury’s powers.
  • While some may pan corporate inversions as a way for companies to “hide profits overseas,” corporate inversions are a legal tax practice. Like any rational economic actor, corporations seek out where they can pay the lowest tax rate and thus generate the highest return for their shareholders.
  • As long as the US maintains its high corporate tax rate, American companies will continue to headquarter elsewhere.

Please do not hesitate to reach out if you would be interested in talking with Curtis or any of our other economic experts about inversions or other economic issues.

Curious for more information about corporate inversions, including some of the largest such deals of the past few years? We’ve got you covered.

Pfizer vs Allergan

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