The Pfizer-Allergan merger, a deal that would have been worth $160 billion, has officially been scrapped — and it's bad news for investment banks.
The US Treasury Department on Monday tightened the rules around tax inversions, the type of transaction Pfizer was trying to pull off with Allergan.
US President Barack Obama spoke out against tax inversions a day later, saying these deals hurt ordinary Americans.
Through inversions, US companies merge with competitors outside the country so they can officially be located overseas and thus lower their tax bills.
Inversion "makes hardworking Americans feel like the deck is stacked against them," he said.
Now the two companies have called the deal off, and their advisers could lose 90% of the $236 million in fees they had been due, according to the consulting firm Freeman & Co.
Goldman Sachs, Centerview Partners, Guggenheim, and Moelis had been advising Pfizer on the deal, while JPMorgan and Morgan Stanley were working for Allergan.
Pfizer's advisers were expected to be paid a combined $94 million in fees, while Allergan's advisers were set to receive $142 million, according to Freeman. It is possible that Allergan's advisers will get a cut of the termination fee that Pfizer pays Allergan.
The measures announced Monday targeted something called earnings stripping, a way of jacking up interest payments to lower tax bills.
Another deal — the proposed merger of Halliburton and Baker Hughes — is also at risk of derailing this week. The US Department of Justice is reportedly readying an antitrust lawsuit to block that merger.
The three banks advising on that deal — Bank of America, Credit Suisse, and Goldman Sachs — are due to receive $110 million in fees and could lose the bulk of it if the deal unravels.
