Pfizer reportedly plans to end merger with Allergan as tax rules tighten

Pfizer plans to end its $152 billion merger with Allergan — the largest deal yet aimed at helping an American company shed its U.S. corporate citizenship for a lower tax bill — just days after the Obama administration introduced new tax rules, a person briefed on the matter said late Tuesday.

The two drug companies could announce their decision to terminate the deal as soon as Wednesday morning, according to this person, who was not authorized to speak publicly.

The decision is a victory for the Obama administration, which rolled out the initiatives as part of an effort to thwart the ability of companies to move income overseas beyond the reach of the United States.

The proposed regulations, announced Monday by the Treasury Department, appeared specifically to target Pfizer and Allergan, which has its tax domicile in Ireland. Still, tax experts said that other transactions would also be affected.

When Pfizer and Allergan announced their deal in November, they knew that the Obama administration would try to take aim at the deal. But the companies and their advisers were stunned when the Treasury Department took highly aggressive steps in removing many of the tax benefits of the merger.

Advisers for the two companies spent much of Tuesday weighing their options. But many analysts and legal experts had concluded that fighting the Treasury Department would be costly, with little guarantee of success.

In walking away from the planned transaction because of changes in tax rules, Pfizer would have to pay Allergan, the maker of Botox and other drugs, up to $400 million, according to the merger agreement between the two companies.

Previous rule changes by the Treasury Department have killed some proposed inversions, like the drugmaker AbbVie’s planned $54 billion takeover of Irish counterpart Shire. But they had otherwise done little to stem a rising tide of U.S. companies seeking foreign acquisitions to reduce their tax rates.

The rules announced Monday by Treasury, however, were seen as much more aggressive and expansive, and they sent shock waves up and down Wall Street.

This story was originally published April 5, 2016 at 10:56 PM with the headline "Pfizer reportedly plans to end merger with Allergan as tax rules tighten."