Why Pfizer – Allergan Deal Called Off?

Pfizer Inc.  and Allergan PLC terminated their planned $150 billion merger after the Obama administration took aim at the deal that would have moved the biggest drug company in the U.S. to Ireland to lower its taxes. As Pfizer called off the deal, they will pay Allergan a breakup fee of $150 million.

What is Tax Inversion?
It is a case in which a U.S. company buys a foreign rival and adopts its lower-tax jurisdiction. Therefore US company relocates the HQ to foreign companies HQ. Main objective is to cut tax.

The terminated deal is Pfizer’s second failure at buying an overseas company. In 2014, Pfizer had tried but failed to buy British drugmaker AstraZeneca PLC. Afterward, it looked for a new partner, before finally reaching terms with Allergan.

By combining with Ireland-based Allergan, Pfizer could not only cut its tax rate, but also get access to the billions of dollars in revenue it was keeping overseas to avoid paying U.S. taxes on top of the taxes it had already paid in foreign countries.

The combination also had nontax benefits for Pfizer, including access to Allergan’s portfolio of strongly growing products like antiwrinkle treatment Botox, dry-eye treatment Restasis, and new irritable-bowel drug Linzess. A combination also might have paved the way for Pfizer to shed its collection of cash-generating but older slower-growth drugs.

Tax-inversion deals have become commonplace in U.S. corporate deal making. They also have become a talking point in the U.S. presidential campaign, with certain candidates attacking the uprooting of American companies and departure of tax receipts.

The tie-up between Pfizer and Allergan, the biggest merger announced last year—the busiest ever for takeovers—was a particular campaign target. Republican and Democratic presidential candidates have criticized the deal.