There can be few suitors more frustrated than Pfizer. Its record-breaking US$160bn deal with Allergan has been called off, despite the insistence of Chief Executive Ian Read in February that the merger would not be thwarted by political opposition.
This is the second time Pfizer has been jilted recently. In 2014, its advances were rebuffed by AstraZeneca, and this time it made it to the altar with Allergan, only to find that there was a lawful impediment, in the form of new Treasury rules to stop tax inversions, to prevent the union. Pfizer had reportedly stood to cut its costs by more than $1bn a year by moving its headquarters from the US to Ireland, but with this dowry no longer on offer, both parties have walked away.
For Pfizer, things go back to where they were before the proposed Allergan deal: the breakup of the company by the end of this year is back on the table and it is likely to be on the look out for a new bride: Shire, Biogen, Regeneron and Abbvie have all been mentioned as eligible matches. Allergan, meanwhile, is hiding its disappointment well by emphasing its own growth potential; it, too, is likely to be on the lookout for new partners.
The US Treasury action is not particularly surprising – it took similar measures in 2014 to stop a similar outflow of tax revenues – all the less so because it comes at a time when international financial dealings are in the spotlight.
US President Barack Obama has warned that ‘tax avoidance is a big global problem’, and has urged Congress to take action to eliminate tax loopholes. He criticised the inversion trend, saying ‘these companies get all the rewards of being an American company without fulfilling their responsibility to pay their fair share of taxes’.
Neither Pfizer nor Allergan can be blamed for feeling somewhat hard done by in the wake of the collapse of the merger: after all, changing the rules in the middle of the game is hardly sporting.
On the other hand, tax loopholes may be legal, but that doesn’t make them right.