As you have heard by know Pfizer and Allergan PLC terminated their planned $150 billion merger after the Treasury department implemented a new rule that ignores up to 3 years worth of US acquisitions when determining a company’s size. To reap maximum benefits, shareholders of the inverting company need to own between 50 and 60% of the combined entity and without going into a longer explanation up to 80% ownership in the combined organization also works, but the tax perks are diminished, above 80% they are lost entirely.

US companies need inversion partners that are at least one quarter their size, ideally two thirds. So, mid-stream, the rules are changed and Allergan’s size is reduced by the new rule. Boards of Directors of Pfizer have a fiduciary duty to represent shareholders. If an inversion increases returns to shareholders, then the board must act. Pfizer and Allergan were going to marry because it made sense for Pfizer to get access to Allergan’s strong portfolio of growing products like antiwrinkle treatment Botox, dry eye treatment Restatsis among others and it would have, in the words, of Ian Reid CEO of Pfizer, paraphrased here, dealt with Pfizer’s competitive disadvantage with foreign rivals that faced significantly lower tax bills. The new strategy for rules changes in the middle of the game might now be: take your ball and go home.   

About Caldwell Trust Company

Caldwell Trust Company is an independent trust company with offices in Venice and Sarasota, Florida. Established in 1993, the firm currently manages over $800 million in assets for clients throughout the United States. The company offers a full range of fiduciary services to individuals, including services as trustee, custodian, investment adviser, financial manager and personal representative. Additionally, Caldwell manages 401(k) and 403(b) qualified retirement plans for employers.