Pfizer – Allergan Merger Falls Through the Cracks

The Pfizer – Allergan deal valued at $160bn would have been the biggest pharmaceutical deal in history but has been terminated on inversion grounds;

Inversion:

  • The US Treasury department rolled out new rules on Monday which would limit companies ability to partake in inversion transactions if they have already done them within the past 36 months.
  • Allergan was found wanting in this regard having been involved in similar acquisitions within the stated time frame.
  • In inversion Transactions, a US firm merges with a company in a country with a lower tax rate.
  • Allergan has a legal domicile in Dublin but run from New Jersey so the merger would have given Pfizer a foreign address and a lower tax rate.
  • The corporate tax rate in the Republic of Ireland is 12.5% against US’s 35%

Deal Breaker:

  • Pfizer will need to pay a $400 million break up fee to Allergan for expenses relating to the deal as per the merger agreement.

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