US Treasury crackdown could end $160bn Pfizer-Allergan merger

Shares in Allergan have dived after the US Department of the Treasury introduced new rules cracking down on so-called tax inversions, which could put an end to its $160 billion mega-merger with Pfizer.

The US Treasury has already tightened rules on tax inversions twice, ending AbbVie's attempt to buy Shire in 2014. Like the Allergan merger this would have involved domiciling in a lower-tax country to avoid US tax rates.

But the latest Treasury proposals go far far further than these previous reforms in closing loopholes which create incentives for tax inversions. So much so that it could scupper Pfizer's attempt to merge with Allergan and create the world's largest pharma.

The new rules means a foreign company that acquires US companies in stock-based transactions is prevented from using the resulting increase in size to avoid the country's inversion rules. This rule is clearly aimed at preventing the kind of reverse merger seen in these deals.

Tax experts noted that although the Treasury made no mention of the Allergan-Pfizer merger, the new rules close a loophole that is central to the merger.

In particular, they said that a three year lookback when calculating ownership percentages is particularly damaging for the deal.

The companies said in a joint statement that they were reviewing the Treasury Department's notice. "Prior to completing the review, we won't speculate on any potential impact."

In after-hours trading, shares in Allergan fell almost 22% to $217.50 on the New York Stock Exchange. Pfizer shares jumped 2.5% to $30.72.

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