The biggest pharmaceuticals deal in history, a planned $160bn (£113bn) merger of US company Pfizer and Ireland’s Allergan, was abandoned today as a result of a US government crackdown on so-called tax inversions.
The collapse of the blockbuster deal has stoked fears that last year’s M&A bonanza is coming to an end.
Both pharma giants have pointed the finger of blame for the deal’s failure directly at the US Treasury, with Allergan saying the tie-up had been specifically targeted by new tax inversion rules announced on Monday.
Pfizer confirmed in a statement that the “decision was driven by the actions announced by the US Department of Treasury”.
Allergan chief executive Brent Saunders told CNBC: “These rules... [were used] very specifically to target this deal.”
Tax inversions had been used by US firms to merge with companies in countries with lower tax rates, enabling them to slash their total tax bills.
It is believed that Pfizer planned to move its headquarters to Ireland, which enjoys low corporation tax rates, as part of the deal.
M&A experts have predicted the merger’s collapse will put an end to future inversions, resulting in other large transactions being called off and making the US less attractive for dealmakers.
Chris Stirling, global lead for life sciences and healthcare at KPMG, predicted “all big inversions are probably off the table” now.
One of the next planned mergers affected could involve Coca-Cola. Dealogic has identified the merger of three of Coca-Cola’s European bottlers, agreed last year, as a pending tax inversion deal because it would see Coca-Cola Enterprises move its headquarters from the US to the UK.
Other US inversions pending include the proposed merger of Johnson Controls with Ireland’s Tyco International and the $13bn tie-up between UK-based Markit and US rival IHS – although IHS and Markit have said the merger will not be affected.
Shire has said it does not expect its $32bn merger with Baxalta, announced in January, to be affected by the new rules.
Stirling told City A.M.: “My guess is that boards would really struggle to put a proposition to do a big inversion to their shareholders in the light of what’s happened on this particular deal.”
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“It’s created massive waves in the industry,” Martin Gouldstone, an M&A director specialising in healthcare at BDO, said. “The larger corporates outside of the US are going to think twice before they make acquisitions in the US.”
The new tax inversion rules could also put a dampener on global M&A volumes in 2016.
Last year saw record levels of M&A, with volume totalling more than $5 trillion. But 2016 has been a different story with M&A volume of $749.8bn in the first quarter, down 20 per cent on the same period in 2015, according to Dealogic.
Global pharmaceuticals-targeted M&A, meanwhile, is down 66 per cent year-on-year at $22bn.