Pfizer's $160B megadeal for Allergan collapses under new tax rules

The Pfizer-Allergan deal is off. After the U.S. Treasury Department issued new tax-inversion rules Monday, the two companies decided to walk away, Pfizer ($PFE) said in a statement Wednesday morning.

Pfizer CEO Ian Read

At $160 billion, it would have been the biggest pharma deal ever. It would have moved Pfizer's official headquarters to Ireland and created the world's largest drugmaker. And, before Treasury stepped in, it would have satisfied Pfizer CEO Ian Read's longtime quest to cut its tax rate with an overseas move.

Because Treasury's new rules qualified as an "adverse tax law change" under their merger agreement, Pfizer's break-up penalty is small: The company agreed to pay Allergan ($AGN) $150 million to reimburse expenses associated with the transaction, Allergan said in a Wednesday morning announcement.

Obviously, the deal's collapse is a disappointment on both sides, but fans of a Pfizer split-up might take consolation in this: The company now plans to decide by year's end whether to break into two separate businesses.

That's back to Pfizer's original timeline for a breakup decision, Read said in a statement. The company had put off that deadline to 2018 after agreeing to buy Allergan.

The company will also go back to looking for deal prospects and will pursue "other shareholder friendly capital allocation opportunities," Read said.

Allergan CEO Brent Saunders, who would have been in line to take Read's job down the line if the deal had gone through, said his company is well able to deliver growth on its own. It will also have plenty of firepower to make deals, particularly after it wraps up sale of its generics business to Teva ($TEVA) for $40.5 billion, he said.

Allergan also said that the new Treasury rules shouldn't affect its own tax rate. The company's own tax headquarters moved to Ireland less than three years ago with the acquisition of Warner Chilcott.

- read the Pfizer announcement
- check out Allergan's release

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