High-profile breakups tend to have winners and losers. And you can bet that the dissolution of what would have been both the largest-ever tax inversion and the largest-ever deal in health care will, too.
The drug makers Pfizer (PFE) and Allergan (AGN) agreed to part ways on Wednesday, nixing a proposed $152 billion merger that would have allowed Pfizer to pay lower taxes by moving its headquarters to Ireland. The reason: New rules from the US Treasury intended to make it tougher for corporations to reduce taxes with that type of maneuver, known as an inversion.
The fallout from the breakup isn’t yet entirely clear. But here’s an early scorecard:
THE BIG WINNERS
The American taxpayer
For now, the US taxpayer is “better off” thanks to the deal’s collapse, said Ronny Gal, a senior investment analyst at the investment research firm Bernstein. The more taxes paid by big companies like Pfizer, the less the rest of us have to do to shoulder the tax burden, Gal said.
Treasury Secretary Jack Lew
It’s been a good few days for President Obama’s former chief of staff. After the Treasury announced the new rules on Monday, Obama took to the podium on Tuesday to forcefully vouch for Lew’s crackdown — and by Wednesday, the Pfizer-Allergan merger was over. After getting such prominent support — and such prominent results — so quickly, Lew’s sending a message that he’s not to be crossed.
It’s likely the next president will appoint a treasury secretary with similar views. Donald Trump, Hillary Clinton, and Bernie Sanders all slammed the proposed merger when it was announced in November. And on Wednesday, both Sanders and Clinton tweeted that they were glad to see the deal dissolve. (Ted Cruz, for his part, wants to abolish the corporate tax altogether.)
Pfizer and Allergan employees
Observers predicted that a merger would mean thousands of layoffs as Pfizer and Allergan consolidated. For now, those folks are probably keeping their jobs.
And three Pfizer executives who had each been promised $1 million retention bonuses to see the deal through can rest easy: They get those checks even though the deal collapsed, Bloomberg reported.
Medium-sized drug companies
It was widely assumed that the integration would keep Pfizer and Allergan plenty busy, leaving them with little time to go after smaller drug companies. Now, both companies are expected to be looking for deals — and that could mean rich payouts for some biotech firms with assets that the two pharma giants want to acquire.
THE BIG LOSERS
Shareholders of both companies
Stock in both Pfizer and Allergan was expected to grow in value after the deal. Now, that’s not happening.
The movement to make the tax rate at home more favorable to companies
Companies have used the threat of fleeing overseas as a way to lobby for tax reforms to bring down their bills in the United States. The Treasury’s new rules may make that an empty threat — and make tax reform less likely.
Pfizer CEO Ian Read
Pfizer’s CEO had been counting on the merger to stay competitive with other big players in pharma. Instead, this becomes his second failed merger (in 2014, he tried unsuccessfully to take over UK-based AstraZeneca). Now, he has to scramble to cook up a Plan B.
Investment banks that had been expecting a big payout
When big deals are finalized, the investment banks that advise the companies on the transaction get a healthy cut.
The four banks advising Pfizer on the deal — Goldman Sachs, Guggenheim, Centerview, and Moelis — stood to split an estimated $94 million, with the bulk going to Goldman Sachs and Guggenheim. And the two banks advising Allergan — J.P. Morgan and Morgan Stanley — stood to split $142 million, according to estimates from the financial advisory and consulting firm Freeman & Co.
The banks aren’t going home with nothing: When deals collapse, advising banks typically get about 10 percent of the haul they would have otherwise gotten, and in some cases they can get a portion of the breakup fee, according to Jeffrey Nassof, a director at Freeman & Co. But the banks are “obviously not happy” with how thing went down, Nassof said.