Dive Brief:

Pfizer and Allergan on Wednesday officially terminated their $160 billion proposed mega-merger, citing new tax rules issued by the U.S. Department of Treasury earlier in the week.

The merger would have created the world's largest pharmaceutical company and would have allowed Pfizer to shift its tax base to Ireland, thereby lowering its corporate tax rate. The Obama administration has fought against so-called tax inversions, seeking to stop companies from moving their headquarters overseas to pay less in taxes.

As a fee for calling off the deal, Pfizer will pay Allergan $150 million for reimbursement of expenses tied to the transaction, the company said.

Dive Insight:

Prior to the Treasury issuing its new rules, Pfizer and Allergan had expected the deal to clear regulatory hurdles in the second half of 2016. However, Pfizer said the Treasury's actions qualified as an adverse tax law change under the merger agreement and pulled the plug on the deal.

"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," said Allergan CEO Brent Saunders.

Allergan pointed to the possibility for new growth opportunities stemming from the $40.5 billion it will receive from the sale of its generics portfolio to Teva.

Both companies were quick to point to their respective pipelines and growth prospects independent of each other. However, the failed merger brings Pfizer's hopes for a lower corporate tax rate crashing down, at least for now.

The new inversion rules from the Treasury change the way ownership shares are calculated in a merger. Assets acquired by foreign firms from American companies in the three years prior to the latest acquisition will now be disregarded. This made it more difficult for Pifzer to duck under the 60% ownership threshold on inversions.

Pfizer had structured its deal with Allergan to own 56% of the resulting combined company. Now, a number of acquisitions made by Allergan before its agreement with Pfizer would no longer have counted towards Allergan's stock ownership in the merger. This put Pfizer over the 60% threshold, undoing many of the economic benefits Pfizer would have gained. While the companies may still have been able to move forward even under the new rules, the deal appeared to no longer make economic sense.

With the merger called off, Pfizer will soon decide on whether to separate off some of its businesses. "We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction,” said Ian Read, CEO of Pfizer.

These plans will now be harder without the addition of Allergan's portfolio, which was also meant to bolster Pfizer's businesses for a future break-up of the combined company.

The move comes one day after President Obama again criticized inversions, calling them "one of the most insidious tax loopholes out there."

In an appearance before reporters at the White House, the president said companies had used inversions to "keep most of their actual business here in the United States because they benefit from American infrastructure and technology and rule of law.

"They benefit from our research and our development and our patents. They benefit from American workers, who are the best in the world, but they effectively renounce their citizenship," Obama said. "They declare that they’re based somewhere else, thereby getting all the rewards of being an American company without fulfilling the responsibilities to pay their taxes the way everybody else is supposed to pay them."