M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, April 6, 2016

Well that was fast

Yesterday, the Obama administration announced new rules to stem tax inversions.  Today, Pfizer announced that it was terminating its merger agreement with Allergan, citing adverse changes in tax laws as the reason.  The merger agreement defines Adverse Tax Law Change as: 

Adverse Tax Law Change” shall mean (x) any change in applicable Law (whether or not such change in Law is yet effective) with respect to Section 7874 of the Code (or any other U.S. Tax Law), (y) the issuance of an official interpretation of applicable Law, as set forth in published guidance by the IRS (other than News Releases) (whether or not such change in official interpretation is yet effective), or (z) the passage of a bill or bills that would implement such a change in identical (or substantially identical such that a conference committee is not required prior to submission of such legislation for the President’s approval or veto) form by both the United States House of Representatives and the United States Senate and for which the time period for the President of the United States to sign or veto such bill has not yet elapsed, in each case, that, once effective, in the opinion of a nationally recognized U.S. Tax counsel, would cause Parent to be treated as a United States domestic corporation for United States federal income Tax purposes following completion of the Transactions (it being agreed that, for this purpose, U.S. Tax counsel shall be entitled to make such reasonable assumptions as to the relevant facts and, with respect to notices described in Section 7805(b) of the Code published in the Internal Revenue Bulletin that announce the intention to issue future regulations, the most likely form that such regulations will take).

An Adverse Tax Law Change triggers a mutual right to terminate the merger agreement.  Upon a termination, Pfizer agreed to reimburse Allergan's expenses up to $400 million. In the press release Pfizer indicated that the amount to be reimbursed would be $150 million. 

According to the WSJ, the Pfizer-Allergan deal was the largest ever deal at $150 billion to be terminated.  If the Obama administration was gunning for the Pfizer deal when it announced its new anti-inversion regulations yesterday, it hit its mark.



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