Pfizer, Allergan terminate merger deal

Pfizer and Allergan announced Wednesday that their $160-billion merger accord has been terminated by mutual agreement as a result of new regulations issued by the US Treasury Department. The companies concluded that the rules, designed to curb tax-inversion deals, qualified as an "adverse tax law change" under the merger agreement.

According to Pfizer, the drugmaker will pay Allergan $150 million for reimbursement of expenses associated with the transaction. Under the agreed terms, a break-up fee of up to $400 million was due to be paid by the terminating party in the event the companies could not execute the merger due to tax rule-changes.

Commenting on the news, Pfizer CEO Ian Read said the company "approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies." The executive added that the drugmaker will "make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe."

"The fact that the company is talking about the original split-up decision timeline of late 2016 almost seems to suggest they have given up on inversion," suggested Sanford C. Bernstein & Co. analyst Timothy Anderson.

Meanwhile, Allergan CEO Brent Saunders remarked "we are disappointed that the Pfizer transaction will no longer move forward," adding "while this was not Plan A, we were prepared for this." The company indicated that based on a preliminary review of the new regulations, it does not expect them to have a "material impact" on its tax rate.

In regard to moving forward, Saunders said "we're going to go and look to find assets that complement and increase our growth profile." Saunders suggested that trying to fight the Treasury Department's new rules "would have been a long, protracted, expensive fight." The executive remarked "perhaps we could have won, but that's not a fair position to put our shareholders in, particularly when our stand-alone prospects, our growth prospects, our pipeline is so strong."

For further analysis, read ViewPoints: Where next for Allergan and Pfizer? and ViewPoints: Does collapse of the Pfizer/Allergan deal have further-reaching implications?

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