Pfizer, Allergan Scrap $160 Billion Deal After U.S. Tax Rule Change The merger would have allowed New York-based Pfizer to cut its tax bill by an estimated $1 billion annually by domiciling in Ireland, where tax rates are lower.

U.S. drugmaker Pfizer Inc. and Ireland-based Allergan Plc. walked away from their $160 billion merger on Wednesday, a major win for President Barack Obama, who has been pushing to curb deals in which companies move overseas to save on taxes.

Pfizer said the decision was driven by new U.S. Treasury rules aimed at curbing such deals, called inversions. The merger would have allowed New York-based Pfizer to cut its tax bill by an estimated $1 billion annually by domiciling in Ireland, where tax rates are lower.

While the new Treasury rules did not name Pfizer and Allergan, one of the provisions targeted a specific feature of their merger -- Allergan's history as a major acquirer of other companies.

With the deal behind it, Pfizer said it would decide this year about whether to split off its hundreds of generic medicines into a separate business. It had put off making that decision until 2019 after announcing its deal with Allergan last November.

Allergan said it would move ahead with plans for its $40.5 billion sale of its generic drug business to Israel's Teva Pharmaceutical Industries. It expects the transaction to close by June.

Pfizer will pay Allergan $150 million to reimburse expenses from its deal.

Shares of Allergan, which fell 15 percent on Tuesday, were down 1.7 percent in premarket trading. Pfizer edged up 1.3 percent.

Pfizer has new products coming and plenty of money that it could put to work with acquisitions, though not on the scale of Allergan, said Les Funtleyder, healthcare portfolio manager at E Squared Asset Management in New York, which holds Pfizer shares. It is not clear that Pfizer should definitely split into two, he said.

"It is true that these larger companies are a little unwieldy to manage," Funtleyder said, "but there are plenty of strategies to keep them together and increase shareholder value."

The decision to call off the deal came in part because Pfizer was concerned that any tweaks to salvage its deal with Allergan might have provoked new rules by the Treasury, a source familiar with the situation told Reuters on Tuesday.

Obama on Tuesday called global tax avoidance a "huge problem" and urged Congress to take action to stop U.S. companies from deals that allow it.

U.S. inversion rules have unraveled other mergers. U.S. drugmaker AbbVie Inc. abandoned its $55 billion takeover of Ireland-domiciled peer Shire Plc. in 2014 after the Obama administration cracked down on inversions. AbbVie had to pay Shire a $1.6 billion break-up fee.

(Reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru; Editing by Ted Kerr and Lisa Von Ahn)