Top U.S. drugmaker Pfizer and Irish rival Allergan are charting independent futures after scrapping a record $160 billion deal torpedoed by new Treasury Department rules meant to block American companies from moving their corporate addresses overseas — on paper — to avoid U.S. taxes.
The rules issued Monday, aimed at stopping the companies’ “tax inversion” deal, wiped out its financial incentives and rationale for Pfizer Inc., though they had no impact on Allergan PLC.
That led Pfizer and Allergan to walk away “by mutual agreement” on Wednesday. Pfizer, which is based in New York, will pay Allergan $150 million as reimbursement for its deal-related expenses.
It was Pfizer’s third, and most expensive, failed attempt at an inversion, leaving analysts to speculate Pfizer will drop the strategy for good. The merger would have moved Pfizer’s address, but not its operations or headquarters, to Ireland, where it would have paid hundreds of millions less in U.S. corporate taxes.
Tax inversions, in which a big U.S. company buys a smaller one in another country with a lower tax rate, and then moves the combined company’s address there on paper, are a hot issue in the presidential race. President Obama on Tuesday called them “one of the most insidious tax loopholes out there.”
Pfizer and Allergan regrouped Wednesday and began touting their prospects as solo companies. They are far from being in dire straits as they contemplate their next moves: Both are highly profitable, have multiple lucrative medicine franchises and strong pipelines of experimental drugs, and each have enough cash to quickly do another deal.
“We can pivot very quickly from combination planning to independent planning,” Allergan CEO Brent Saunders told The Associated Press, adding that both companies were prepared for a Treasury move to block their deal but considered it a small risk.
Saunders already is focused on closing Allergan’s $40.5 billion deal to sell its generic drug business to Israel’s Teva Pharmacueticals Industries Ltd., the world’s top generic drugmaker. He expects that to close by July, bringing Allergan about $36 billion after taxes to invest in “opportunities.”
Those include mergers and acquisitions, buying rights to experimental drugs, share repurchases and paying down part of Allergan’s $40 billion in debt, Saunders told The AP.
Best known for its Botox anti-wrinkle injections and Restasis drops for eye disease, Allergan had a profit of $3.7 billion on revenue of $15 billion last year. The company is the result of multiple inversions, and despite its Dublin address operates from offices in New Jersey.
