The biggest merger announcement of 2016 has been called off. Pfizer Inc. and Allergan PLC have officially terminated their merger worth $150 billion, reported The Wall Street Journal. The termination comes after a move by President Obama to prevent tax inversion deals from going through.
The deal would have transitioned the newly created company to Ireland and as a result would have lowered the taxes for the corporation. President Obama notably called inversion deals "one of the most insidious tax loopholes out there," according to The New York Times, "[allowing companies to] flee the country just to get out of paying their taxes."
However, opponents of the new government measures see these loopholes being closed as a move that will prevent companies from becoming more competitive on an international level.
Pfizer faces the facts
The loss of the merger has some serious implications for Pfizer. The company has had a steady growth rate but NYT reported that investors are getting anxious to keep expanding.
The termination of this deal positions Pfizer at a meaningful crossroads. According to WSJ, company leaders must now decide whether to split the company into smaller and more focused parts or continue to seek out a new business for expansion.
Senior Analyst at Sanford C. Bernstein & Company Tim Anderson predicted that the company will lean toward a split up in a letter to investors, reported NYT.
"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," he explained.
Undoubtedly, the new restrictions put forth by the Obama administration are giving Pfizer pause on moving forward with a deal similar to its one with Allergan. The major appeal of merging with Allergen was the offshore location of the company's tax domicile. The shift in regulation caused the termination of the deal and the new policies are likely to deter a similar framework, explained the source.
Supply chain implications
The intended merger would have had some interesting consolidation effects on both Pfizer and Allergan's supply chains.
Business is seemingly back to normal for both organizations but Pfizer's next move will undoubtedly have some substantial effects on supply chain management and procurement practices within the company.