McQuaid Group says tax regulation changes will almost certainly wreck the planned merger between US pharmaceutical giant Pfizer and Ireland’s Allergan say analysts at Tokyo, Japan-based broker, McQuaid Group.

The US Treasury Department unveiled new rules on Monday that prevent so-called inversion deals. Inversion deals involve large US corporations taking over smaller companies in countries with more favorable corporate tax regimes and moving their headquarters to the new jurisdiction. The move would have saved Pfizer over $1 billion in taxation but those benefits will evaporate under the new rules.

Art Dolan, mergers analyst at McQuaid Group said that, under the terms of the merger agreement, Pfizer would have to pay Allergan a $400 million “break fee” but didn’t believe that either firm would consider challenging the US government in the courts.

Had the deal gone the distance, it would have been the largest ever health sector deal and it would have justified that eye-watering price Pfizer was willing to pay for Botox-maker, Allergan. Pfizer was offering $363.63 per Allergan share, a price which at the time, had much of Wall Street wincing with skepticism

“Corporate inversions have been heavily-criticized by US presidential candidates and the current administration because it enables companies to avoid paying their fair dues in tax. Frankly, we welcome the development. These companies thrive in the open environment in the US but don’t want to pay their fair share of tax and that is wholly unacceptable,” said Dolan.

Pfizer shares jumped 2% on hopes it would write off the merger altogether while Allergan’s share price fell by 14.7%.
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