Pfizer likely to pull the plug on Allergan deal: Reuters

Pfizer ($PFE) may be able to find a way to salvage its $160 billion merger with Allergan ($AGN), even after the U.S. Treasury Department's latest efforts to curb tax inversions. But word has it, it doesn't want to.

The pharma giant is leaning toward walking away from its pact with the Dublin company, a source told Reuters Tuesday afternoon, though no final decisions have been made. And while lawyers have already laid out options for saving the deal, the New York drugmaker isn't taking the bait.

The reason? "Pfizer is aware that the Treasury will keep ruling against any solution it can come up with," the source told the news service, noting that company CEO Ian Read isn't willing to wage a legal war against U.S. authorities.

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Pfizer CEO Ian Read

The companies jointly issued a statement Monday indicating that they were conducting a review of the Treasury's actions and wouldn't speculate on potential impact until it was completed.

Pfizer, which has been vocal about pursuing an inversion in order to keep up with its advantaged rivals, has always known that Washington wasn't too fond of its plan to move its tax base overseas. With that in mind, it built in room for either party to walk away from the transaction if a change in U.S. law scuttled its potential for tax savings; whichever company heads for the door is required to pay up to just $400 million for its expenses.

But according to Reuters, Read wasn't expecting a crackdown just yet. Pfizer and Allergan had been looking for ways to bypass the law that's currently in place, forecasting a move from the Treasury later in the year--and after their pact was cemented.

So what's next for Pfizer if it does walk? Plenty of ideas are already circulating among industry-watchers. One scenario: It goes after a U.S. based target such as Bristol-Myers Squibb ($BMY). It could also bump up its timeline for its big split into two separate companies, which would placate breakup-happy investors.

- get more from Reuters

Special Reports: The top 15 pharma companies by 2014 revenue - Pfizer | The most influential people in biopharma today - Ian Read - Pfizer

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