Trump Executive Order Could Revive Allergan-Pfizer Merger
Emily Stewart
TheStreet.comApril 21, 2017
The Trump administration's executive order on tax regulations could revive the defunct Allergan -Pfizer merger.
The White House on Friday unveiled a new executive order instructing the Treasury Department to find and review tax regulations since the beginning of 2016 and make recommendations on modifying or repealing any they see as overly complex and burdensome. The order could potentially open the door for pharmaceutical giants Allergan and Pfizer to take another whack at the $160 billion deal squashed by Obama regulations in 2016.
"Maybe Pfizer would go back with Allergan," said New York-based analyst and former Lehman Brothers managing director Bob Willens. "I'm sure they still want to do the deal, and the only thing that's prevented it is those regulations."
"Perhaps the Pfizer and Allergan deal could be revived, but a lot of time has passed," said Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center.
The companies scrapped the deal in April 2016 after the Treasury Department under Obama announced new rules aimed at curbing corporate inversions. Inversions are a tactic employed by corporations where they take a foreign address, typically through a merger with a smaller firm, to take advantage of lower tax rates abroad. Allergan, which Pfizer was set to acquire, is based in Ireland.
The rules took aim at "serial inverters" -- large companies created through multiple inversions or takeovers of U.S. companies -- and put a three-year limit on foreign companies bulking up on U.S. assets to avoid ownership requirements for inversion deals. Allergan -- formerly Actavis -- acquired Allergan in 2015 (it subsequently changed its name). The rules also sought to curb earnings stripping, a technique commonly used by corporate inverters that may also be under the chopping block now under Trump.
Allergan and Pfizer dumped the deal soon after the new regulations were announced. Allergan CEO Brent Saunders told CNBC that he believed the Treasury Department had targeted its merger specifically.
"It really looked like they did a very fine job of constructing a rule here -- a temporary rule -- to stop this deal, and obviously it was successful," he said.
But the Trump administration's Friday executive order could change that, and Pfizer and Allergan could be tempted to give a merger a second go.
"I think the 'serial inverter' regulations might be on the table," said Rosenthal. "The serial inverter regulations ignored Allergan's prior combinations with U.S. firms, to determine whether Allergan was a smaller foreign company being combined with a larger U.S. company, which would be bad, or was a larger or similar sized foreign company being combined with a U.S. company, which would be fine."
The serial inverter regulations were among Obama's most aggressive use of executive power, he added.
The U.S. Chamber of Commerce in August filed a lawsuit to resist the Obama inversion rules, and the suit is still being played out in court. Willens said the Trump administration could preempt the court case by altering the rules or rolling them back altogether.
An Allergan representative declined to comment. Pfizer representatives did not return request for comment.
While the inversions-related rules have captured the most attention of those potentially up for revision under the Trump administration, there are countless other regulations that could also come under scrutiny, said Steven Miller, former IRS commissioner and national director of tax at Alliantgroup.
"If I had a client who had been hit with an adverse position in financial regulations in 2016, I'd be putting my paper together to go on in," he said. "It could be a small cottage industry."
Emily Stewart
TheStreet.comApril 21, 2017
The Trump administration's executive order on tax regulations could revive the defunct Allergan -Pfizer merger.
The White House on Friday unveiled a new executive order instructing the Treasury Department to find and review tax regulations since the beginning of 2016 and make recommendations on modifying or repealing any they see as overly complex and burdensome. The order could potentially open the door for pharmaceutical giants Allergan and Pfizer to take another whack at the $160 billion deal squashed by Obama regulations in 2016.
"Maybe Pfizer would go back with Allergan," said New York-based analyst and former Lehman Brothers managing director Bob Willens. "I'm sure they still want to do the deal, and the only thing that's prevented it is those regulations."
"Perhaps the Pfizer and Allergan deal could be revived, but a lot of time has passed," said Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center.
The companies scrapped the deal in April 2016 after the Treasury Department under Obama announced new rules aimed at curbing corporate inversions. Inversions are a tactic employed by corporations where they take a foreign address, typically through a merger with a smaller firm, to take advantage of lower tax rates abroad. Allergan, which Pfizer was set to acquire, is based in Ireland.
The rules took aim at "serial inverters" -- large companies created through multiple inversions or takeovers of U.S. companies -- and put a three-year limit on foreign companies bulking up on U.S. assets to avoid ownership requirements for inversion deals. Allergan -- formerly Actavis -- acquired Allergan in 2015 (it subsequently changed its name). The rules also sought to curb earnings stripping, a technique commonly used by corporate inverters that may also be under the chopping block now under Trump.
Allergan and Pfizer dumped the deal soon after the new regulations were announced. Allergan CEO Brent Saunders told CNBC that he believed the Treasury Department had targeted its merger specifically.
"It really looked like they did a very fine job of constructing a rule here -- a temporary rule -- to stop this deal, and obviously it was successful," he said.
But the Trump administration's Friday executive order could change that, and Pfizer and Allergan could be tempted to give a merger a second go.
"I think the 'serial inverter' regulations might be on the table," said Rosenthal. "The serial inverter regulations ignored Allergan's prior combinations with U.S. firms, to determine whether Allergan was a smaller foreign company being combined with a larger U.S. company, which would be bad, or was a larger or similar sized foreign company being combined with a U.S. company, which would be fine."
The serial inverter regulations were among Obama's most aggressive use of executive power, he added.
The U.S. Chamber of Commerce in August filed a lawsuit to resist the Obama inversion rules, and the suit is still being played out in court. Willens said the Trump administration could preempt the court case by altering the rules or rolling them back altogether.
An Allergan representative declined to comment. Pfizer representatives did not return request for comment.
While the inversions-related rules have captured the most attention of those potentially up for revision under the Trump administration, there are countless other regulations that could also come under scrutiny, said Steven Miller, former IRS commissioner and national director of tax at Alliantgroup.
"If I had a client who had been hit with an adverse position in financial regulations in 2016, I'd be putting my paper together to go on in," he said. "It could be a small cottage industry."