Pfizer and Allergan merger is called off

Amid US government plans to change US tax laws

US drugmaker Pfizer has terminated its planned US$160bn merger with Ireland's Allergan 'by mutual agreement' amid plans to change US tax laws.

The move comes two days after the US Treasury announced plans to prevent deals known as 'inversions', where a US firm merges with a firm in a country with a lower tax rate.

The deal would have been the biggest pharmaceutical transaction in history.

Pfizer said the termination was 'driven by the actions announced' by the US Treasury on 4 April.

Ian Read, Pfizer's Chairman and Chief Executive, said: 'Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies.'

He added that the company could now look at splitting off part of the business.

'We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction.'

Pfizer has agreed to pay Allergan $150m 'for reimbursement of expenses associated with the transaction'.

Under the proposed deal, Pfizer would have moved its headquarters to Dublin, where its tax bill would have been lower than in the US.

The corporation tax rate in the Republic of Ireland is 12.5%, compared with 35% in the US.

Allergan said it remained strong without a merger with Pfizer.

Chief Executive Brent Saunders said while he was disappointed that the Pfizer transaction would no longer go ahead, Allergan was 'poised to deliver strong, sustainable growth built on a set of powerful attributes'.

'Our pipeline is one of the strongest in the industry, loaded with 70 mid-to-late stage programmes including 14 expected approvals and 16 regulatory submissions in 2016 alone,' he said.

He added: 'Leading therapeutic franchises with strong brands across seven therapeutic areas provide the foundation for continued strong growth in 2016 and beyond.'

The firm could also deliver additional growth from the sale of its Actavis Generics business to Teva, which is expected to close this June.

John Colley, of Warwick Business School, a Professor of Practice in the Strategy and International Business Group, said: 'In effect this is a major success for the Obama administration, while for Pfizer it is bad news as tax matters have dominated its strategy for more than three years and the collapse of the deal means a $150m fee is now payable by Pfizer to Allergan.

'Perhaps now Pfizer and other pharmaceutical businesses can focus on drug development rather than financial engineering. In 2015, around $600bn of acquisition activity occurred in the pharmaceutical industry, a significant proportion of which was driven by US tax rules and avoiding tax.'

Colley added: 'Pfizer will now need to review its strategy after a lost three years - and other big pharma companies will be following suit.'

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