Pfizer ($PFE) and Allergan ($AGN) are picking up the pieces and moving on after cancelling their $160 billion tax inversion merger. However, it is gone but not forgotten for Allergan CEO Brent Saunders, who claims the deal was killed unfairly by the U.S. Treasury changing the rules in the middle of a game, a contention hotly disputed by Treasury Secretary Jack Lew.
Pfizer CEO Ian Read has little to say since the disappointing change of events. But Allergan’s Saunders has told CNBC that the companies were blindsided by a change in the Treasury rules and felt like the government singled them out unfairly with a “temporary rule.”
Lew in his own interview with CNBC said it took awhile for Treasury to figure out the strategy of serial deals companies were using to qualify for a tax-avoiding inversions. The deals have been going on for years and were particularly popular among pharma companies. Everyone in business knew that Treasury was looking hard to close the loopholes and that the rules could change at any time, he said.
"What I'm really focused on is shutting that pipeline down so this is not available as a matter of policy going forward," Lew told the network. "And I think the important thing here is that every one of them has been on notice for a very long time.”
The rule changes 11 days ago excluded any deals companies had done within 36 months when determining if they met the ownership threshold to gain the tax advantages of an inversion. Allergan itself became an Ireland-based company through an earlier inversion. In most cases, as with Allergan, the companies take on the reduced tax rate of their merger partners, but keep their operations in the U.S.
The Treasury had twice before tightened the rules on inversions which have come under withering criticism from some corners, including President Obama, but which are lauded by business proponents as an important tool to stay competitive. Some earlier proposed mergers fell victim to the previous rule changes, including AbbVie's ($ABBV) proposed $55 billion merger with Dublin-based Shire ($SHPG).
Allergan and Pfizer are both moving to their alternative plans. In fact, hours after the deal was canceled, Allergan announced a $3.3 billion licensing deal for global rights to a portfolio of drugs for neurological disorders from the U.K.'s Heptares. The drugmaker also expects to have $40-billion-plus to work with following the expected sale of its generics business to Teva ($TEVA).
For Pfizer, life without Allergan is less clear. The tax cut would have improved its bottom line long-term while its top line would have benefitted from a portfolio of new drugs in new therapeutic areas. Read has said the company will decide by year-end whether to break into two separate businesses, something many investors have been waiting for. Meanwhile the company also will be looking for different deals to boost its fortunes.
- read the CNBC story