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The successful sinking of inversions

USA
12 May 2016

On 4 April 2016, the IRS and Treasury released proposed and temporary regulations attacking corporate inversion transactions with an even bigger bite than expected. Taxand USA discovers more.

The first to fall victim to the new rules was the Pfizer-Allergan deal. In its press release issued on 6 April 2016, Pfizer announced that the merger agreement was terminated by mutual agreement of the companies. Pfizer indicated that the decision was driven by the actions announced by the U.S. Department of Treasury on 4 April 2016.

Undoubtedly, the statement amassed strong sentiment in boardrooms and living rooms, as the aggregate deal value of $160 billion garnered investors a 30 percent premium based on Pfizer’s and Allergan’s unaffected share prices as of 28 October 2015 (the deal announced in November 2015). One could only imagine the view on Wall Street as various investment bankers and advisors said farewell to an estimated $200 million of success-based deal fees.

Discover more: IRS and Treasury: The successful sinking of inversions


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Taxand's Take

While the temporary regulations issued on 4 April 2016 certainly affected Pfizer, the inversion transaction is not completely dead. Inversions can still be completed, but the potential pricing and mix of cash and equity will likely change. A domestic company is free to invert through an all-cash deal and can still invert through cash and stock deals, but the gymnastics to do so become trickier.

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