U.S. drugmaker Pfizer Inc and Ireland-based Allergan Plc formally announced that they were scrapping their $160 billion merger, marking a big win for President Barack Obama who has been pushing to curb tax-slashing "inversion" deals.
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The announcement followed the unveiling of new U.S. Treasury rules on Monday aimed at curbing such deals. The merger would have allowed New York-based Pfizer to cut its tax bill by redomiciling to Ireland, where tax rates are lower.
Pfizer said on Wednesday it had agreed to pay Allergan $150 million for reimbursement of expenses associated with the deal.
Details on the U.S. plan to curb inversion deals so far are sparse, but essentially the rules seek to limit internal corporate borrowing that moves profits out of the reach of Uncle Sam.
A major part of the rules will involve more scrutiny to ensure that the deals are close to being true mergers and not simply takeovers, where large U.S. companies swallow much smaller ones in foreign locales with lower taxes.
Shares of Pfizer closed up more than five per cent on the NYSE while Allergan was up more than three per cent on the day.