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Allergan CEO: Merger with Pfizer was targeted by US government

Allergan CEO Brent Saunders told CNBC on Wednesday the U.S. government had targeted his company's failed $160 billion deal with Pfizer.

"It really looked like they did a very fine job of constructing a rule here — a temporary rule — to stop this deal, and obviously it was successful," he told CNBC's "Squawk on the Street."

Saunders was referring to new regulations issued Monday by the U.S. Treasury that will prevent so-called inversion deals — under which a U.S. company moves its base to a country with a more favorable taxation environment. The regulation removed the tax benefits New York-based Pfizer had hoped to gain from the deal with Ireland's Allergan.

Saunders singled out the provision in the rules that imposes a three-year limit on foreign companies bulking up on U.S. assets to avoid ownership requirements for a later inversions deal. He said that ban in particular was designed to block the Pfizer-Allergan deal.

Allergan had been blindsided by Treasury's announcement, Saunders said.

"For the rules to be changed after the game has started to be played is a bit un-American, but that's the situation we're in," he said.

"We built this deal around the law, the regulations, all the notices that were put out by the Treasury and it was a highly legal construct," he added. "We followed the rules that Congress had set for companies looking to move to foreign domicile."

Earlier Wednesday, Pfizer and Allergan terminated the merger in the wake of the changes in U.S. tax regulations issued Monday.

Pfizer will pay Allergan a $400 million break fee as per the merger agreement, sources told CNBC.

Pfizer had reportedly stood to cut its costs by more than $1 billion a year by changing its domicile.

Pfizer stock was up 2½ percent Wednesday after closing up just over 2 percent at $31.36 on hopes that the company would dump the merger or renegotiate more favorable terms.

Allergan shares were up more than 2½ percent Wednesday on the NYSE after falling 14.7 percent on Tuesday to $236.55 each.

"While we are disappointed that the Pfizer transaction will no longer move forward, Allergan is poised to deliver strong, sustainable growth built on a set of powerful attributes," Saunders said in an earlier statement. "Leading therapeutic franchises with strong brands across seven therapeutic areas provide the foundation for continued strong growth in 2016 and beyond."

Sources told CNBC that while both companies believed the Treasury had overstepped the bounds of its regulatory authority with a crackdown on inversions, neither wanted to risk launching litigation against the U.S. government.

Pfizer announced in November that it would buy Botox-maker Allergan for $363.63 a share, in what would have been the largest-ever heath sector deal. It also said it would likely move its global headquarters from New York to Ireland.

Analysts said at the time that the proposed tax benefits helped justify the hefty price Pfizer had offered for Allergan.

The move came despite then-pressure from the White House on Congress to take legislative action to prevent inversion deals.

This pressure was ramped up on Tuesday, when President Barack Obama praised the Treasury's new rules and again urged Congress to take action to stop U.S. companies from doing inversion deals.

"While the Treasury Department's actions will make it more difficult ... to exploit this particular corporate inversions loophole, only Congress can close it for good," Obama said.

U.S. presidential candidates Republican Donald Trump and Democrats Hillary Clinton and Bernie Sanders have also criticized inversion deals during their campaigns.

— CNBC.com's Fred Imbert and Reuters contributed to this report.

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