Allergan CEO Brent Saunders
The collapse of Pfizer and Allergan's $160 billion merger plan is a big deal, business-wise, for both companies. But it's a political event, too. In case pharma-watchers forgot that fact while running new numbers and speculating about new M&A, the White House stepped in with a reminder Wednesday.
On CNBC, Allergan ($AGN) CEO Brent Saunders used the unfortunate term "un-American" to describe the U.S. Treasury's well-timed crackdown on tax inversions. The new rules scuttled Pfizer's ($PFE) buyout plans, which heavily depended upon the tax benefits of moving its domicile to Allergan's home base of Dublin.
"We followed the rules Congress had set," Saunders said during a CNBC appearance. "But, for rules to be changed is a bit un-American, but that's the situation we're in."
White House Press Secretary Josh Earnest quickly hit back--not only against Pfizer's effort to take advantage of Ireland's lower tax rate, but at Allergan's own "move" overseas, which put its nominal headquarters in Dublin but left most of its HQ operations back in New Jersey.
"I think it is difficult to have a lot of patience for an American CEO trying to execute a complicated financial transaction to avoid paying taxes in America talking about what it means to be a good citizen of the United States," Earnest said.
Merck CEO Kenneth Frazier
Meanwhile, other pharma CEOs used the defunct deal to bolster their arguments for a corporate tax overhaul in the U.S. Merck ($MRK) CEO Kenneth Frazier, also on CNBC, said the current tax structure hurts stateside companies by making them uncompetitive abroad--and called for a lower overall tax rate and new measures that would allow companies to bring their overseas cash home tax-free.
Frazier, of course, was already on record with similar comments, as are other corporate chiefs for that matter. As Matthew Herper at Forbes pointed out Tuesday, Frazier told Bloomberg last year that the Pfizer-Allergan deal "should be something that serves notice to our policy makers that good American companies feel no choice but to do things like tax inversions in order to remain competitive globally"--even though he had himself rejected the idea for Merck.
Meanwhile, some Irish lawmakers see the deal's collapse as a problem with their own tax code. The Sinn Fein party spokesman on jobs and enterprise, Peadar Toibin, said it exposed the Irish government's "bargain basement corporation tax strategy."
Companies "moving" to the country for its tax benefits typically don't bring jobs or new tax revenue, and can actually cost taxpayers money because their numbers inflate Ireland's GDP numbers, driving up its contributions to the European Union, Bloomberg reported Wednesday.
If the deal had survived, Pfizer wasn't likely to contribute much--if any--additional tax revenue to Ireland, economists told the Wall Street Journal last year.
Irish officials had already accepted the fact that Pfizer's new address wouldn't add much to the domestic economy, either, and might even trigger job cuts, because each company already employed thousands of people there. Pfizer had said it planned to squeeze $2 billion out of the combined company's costs after the merger closed.
In a sense, Ireland said good riddance to Pfizer's proposed inversion. On Wednesday, as IrishCentral reported, the Irish Ministry for Finance said, "In relation to any transactions that may not involve real substance in terms of jobs and investment in the Irish economy, Ireland does not encourage such transactions."
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