Allergan and Pfizer are calling off a record $160 billion merger after the Treasury issued new rules to make tax "inversions" less lucrative, the AP reports. The aggressive changes to US tax laws announced this week helped kill the deal, handing what Reuters calls a "major victory" to President Obama in his efforts to go after corporate mergers set up to get companies out of paying taxes. The merger would have moved Pfizer's address—but not its operations or headquarters—to Ireland, where Allergan is registered and where it would pay far less in corporate taxes. The two companies weren't specifically named on Monday when the Treasury announced its new rules, but one of the provisions went after a feature that Allergan is known for: scooping up lots of other companies in acquisitions.
The new rules don't permit stock accumulated through a foreign company's US deals over the last three years to count toward the book value required to meet the inversion threshold. This affected Allergan since, in this time period, it had carried out a $66 billion merger with Actavis, a $25 billion purchase of Forest Laboratories, and a $5 billion takeover of Warner Chilcott. Obama noted Tuesday that tax avoidance was a "huge problem" worldwide. "While the Treasury Department's actions will make it more difficult ... to exploit this particular corporate inversions loophole, only Congress can close it for good ," he said, per Reuters. Pfizer, based in New York, has agreed to reimburse Allergan $150 million for expenses (Reuters notes it may have to pay up to $400 million, per its merger contract with Allergan).
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