Pfizer and Allergan have terminated their $160bn merger, blaming a crack-down this week on tax inversions deal by the US Treasury Department for scuppering what would have marked the largest-ever healthcare acquisition, reports The Telegraph.

Tax avoidance schemes such as inversion deals, in which US companies move their legal addresses overseas to take advantage of lower tax rates, have long been a thorn in the Treasury’s side. The proposed Pfizer-Allergan merger prompted renewed scrutiny of the issue when it was announced in November last year and drew sharp criticism from US lawmakers, who pledged to tackle the issue.

“The decision [to terminate the merger] was driven by the actions announced by the US Department of Treasury on April 4,” Pfizer said.

Under the terms of the termination agreement, the US-based pharmaceuticals giant has agreed to pay Dublin-based Allergan $150m to reimburse it for expenses associated with the transaction.

Allergan, which is run from New Jersey but has a legal domicile in Dublin, last year agreed to merge with US-based Pfizer in a deal that would have given the New York-based company a foreign address and a lower tax rate.

US President Barack Obama and his administration unveiled tough new rules this week aimed at making inversions like the Pfizer-Allergan one harder to achieve and less beneficial from a tax standpoint. In an inversion, a US company shifts its tax address overseas, often through a merger. In the case of Pfizer and Allergan, the new company would have been located in Ireland, where taxes are lower than in the US.

Chief executive Brent Saunders said while he was disappointed that the Pfizer transaction would no longer go ahead, Allergan was “poised to deliver strong, sustainable growth built on a set of powerful attributes”.

Source: The Telegraph