Allergan says it's looking for another deal. (TS/Bram Janssens)

(Bloomberg) — Pfizer Inc. (NYSE:PFE) and Allergan PLC (NYSE:AGN) have terminated their $160 billion merger in an abrupt end to the largest-ever health-care deal after the U.S. government cracked down on corporate tax inversions.

The U.S. Treasury Department’s proposed new rules to deter companies from using acquisitions to shift their tax addresses overseas drove the decision, the companies said Wednesday in a statement. New York-based Pfizer will pay Allergan $150 million in reimbursement for expenses associated with the failed transaction.

See also: Pfizer, Allergan to combine in deal valued at $160 billion

Both companies are now left looking for their next move — another deal, in Allergan’s case.

“While this was not Plan A, we were prepared for this,” Allergan Chief Executive Officer Brent Saunders said in an interview on Bloomberg TV Wednesday. “We’re going to go and look to find assets that complement and increase our growth profile.”

Pfizer, meanwhile, said it will decide whether to pursue a potential split of the company by no later than the end of this year. The split would probably involve two parts: one focused on new drug development, the other on selling older medications.

“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,” Timothy Anderson, an analyst at Sanford C. Bernstein & Co., said of Pfizer’s decision.

Valeant unit?

Asked about whether he might be interested in buying Valeant Pharmaceuticals International Inc.’s eyecare unit, Bausch & Lomb, Saunders demurred, though did call it a premier asset. He declined to comment directly on what companies he might look at next.

The termination represents a victory for President Barack Obama, whose administration proposed tougher-than-expected new rules aimed at making inversions like the Pfizer-Allergan deal harder to achieve. In an inversion, a U.S. company shifts its tax address overseas, often through a merger.

Saunders said it wouldn’t have been in the best interests of his shareholders or Pfizer’s to fight the new rules.

“It would have been a long, protracted, expensive fight,” he said during the interview. “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.”

Inversions dead

With the Treasury rule, tax inversions — dozens of which were performed by U.S. companies seeking to escape the country’s 35 percent corporate tax rate — appear to be largely over.

“Inversions are dead,” said John Schroer, sector head of health care at Allianz Global Investors. Josh Earnest, a White House spokesman, said Tuesday that the administration hoped its new proposals would stop the transactions.

Allergan, which is run from New Jersey but has a legal domicile in Dublin, last year agreed to merge with Pfizer in a deal that would have given the New York-based company an Irish address and a lower tax rate.

Pfizer shares rose 1.2 percent to $31.75 at 9:44 in New York, while Allergan gained 1.3 percent to $239.65. Allergan will hold a call on Wednesday at 10 a.m. to discuss the breakup and the company’s next steps.

Pfizer still plans to report first-quarter earnings on May 3.

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