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UPDATE: Obama’s inversion curbs kill Pfizer’s US$160b Allergan deal

Wednesday, April 6, 2016 - 10:22

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Drugmakers Pfizer Inc and Allergan Plc will mutually terminate their merger early Wednesday morning, according to a source familiar with the matter.

[NEW YORK] Drugmakers Pfizer Inc and Allergan Plc will mutually terminate their merger early Wednesday morning, according to a source familiar with the matter.

Earlier on Tuesday, Reuters reported that Pfizer was leaning towards abandoning its US$160 billion agreement to buy Allergan in light of the US Treasury's new measures to curb such tax-evading deals.

The US Treasury Department had taken fresh steps on Monday to curb tax-driven corporate inversions whereby companies seek to slash their tax bills by redomiciling overseas, though their core operations and management usually remain in the United States even as they claim a new tax home.

Pfizer was not willing to change the terms of its deal with Allergan which, under the new tax rules, would no longer benefit from the move to Ireland.

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CNBC first reported on the termination of the deal late Tuesday.

The termination marks a major victory to US President Barack Obama’s drive to stop tax-dodging corporate mergers.

The decision to end the biggest tax “inversion” ever attempted, which would have seen Pfizer slash its tax bill by redomiciling to Ireland where Allergan is registered, came a day after the US Treasury unveiled new rules to curb inversions.

While these new rules did not name Pfizer and Allergan, one of their provisions targeted a specific feature of their merger; Allergan’s previous history as a major acquirer of other companies.

The subsequent demise of the deal allows Mr Obama to claim a major victory during his last year in office.

Earlier on Tuesday, Mr Obama called global tax avoidance a“huge problem” and urged Congress to take action to stop US companies from tax-avoiding corporate “inversions”, which lower companies tax bills by redomiciling overseas.

“While the Treasury Department’s actions will make it more difficult... to exploit this particular corporate inversions loophole, only Congress can close it for good,” Mr Obama said.

Several US presidential candidates, including Republican Donald Trump and Democrats Hillary Clinton and Bernie Sanders, have seized on the issue in their campaigns. “We have so many companies leaving, it is disgraceful,” Mr Trump told reporters as he greeted voters in Waukesha, Wisconsin on Tuesday.

Ms Clinton and Mr Sanders both expressed support for Treasury’s plan.

Besides Pfizer-Allergan, other pending inversion deals that have not yet closed include the proposed US$16.5 billion merger of Johnson Controls Inc with Ireland-based Tyco International Plc, Waste Connections Inc’s US$2.67 billion deal with Canada’s Progressive Waste Solutions Ltd , and IHS Inc’s US$13 billion acquisition of London-based Markit Ltd.

In all these cases, the shares of the target companies fell only slightly.

Johnson Controls and Tyco said they would respond after conducting a review of the new rules.

 

 

REUTERS/AFP

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