Investors May Get Vote on Pfizer-Allergan Deal Tax Proposal

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By Che Odom

March 4 — Pfizer Inc. stockholders may get to vote on a resolution making a taxable event for stockholders—such as the company's proposed merger with Allergan Plc—a taxable event for directors and officers, in what may be the first shareholder proposal of its kind.

In a Feb. 29 determination, the staff of the Securities and Exchange Commission said it couldn't agree with Pfizer's contention that the resolution could be excluded from the company's proxy materials because it is “inherently vague” or because it impinges on ordinary business operations.

The staff, from the SEC's Division of Corporation Finance, also said it couldn't concur that the company lacks power to implement it.

Because of the staff's decision, the shareholder resolution must appear on Pfizer's proxy and be put to a shareholder vote at the company's annual meeting to avoid possible SEC enforcement action, unless the company reaches an agreement with proponent Dennis Breuel.

In his resolution, Breuel argued that Pfizer's planned $160 billion deal with Dublin-based Allergan is an inversion, requiring investors to sell their shares and get new ones in the surviving company, creating a taxable event. His resolution would prevent the company from paying the taxes incurred by board members and management as a result of the transaction.

“If the shareholders must pay taxes for the taxable event, the management and Board of Directors must also,” he said in a Dec. 21 letter to the SEC.

Attorneys told Bloomberg BNA that to their knowledge, this may be the first such effort to address the tax implications of an inversion through the use of shareholder proposals.

“This is relatively new, especially given the size of the deal,” said a mergers and acquisitions partner at a law firm who asked not to be identified. “This could be a problem in designing a deal if you have to worry about boards and management paying the same taxes as stockholders because I'm not sure how you do that.”

Inversion Deal

The Pfizer-Allergan deal, announced last November, is one of the largest acquisitions on record, and it is structured so that Allergan is technically buying its much larger partner. The move makes it easier for the company to locate its address in Ireland for tax purposes, though the drugmaker's operational headquarters will be in New York.

If the new company is able to establish itself abroad for a lower tax rate, a controversial process called an “inversion,” it will be the largest such move in history.

Inversions by U.S. companies are highly unpopular with the Treasury Department and Congress, and lawmakers are taking steps to address the transactions.

Powerless to Implement

In a Dec. 18 letter to the SEC, Pfizer requested “no action” relief, a grant of implicit authority to exclude the proposal from its proxy materials. The company argued that it cannot require members of its management or board to pay taxes on the basis that Pfizer shareholders owe taxes.

The Internal Revenue Code and federal tax regulations will dictate whether something is a taxable event for any person, and Pfizer lacks the power to make a matter a “taxable event” if the tax code or federal regulations don't do so, the company said.

To contact the reporter on this story: Che Odom in Washington at

To contact the editor responsible for this story: Yin Wilczek at

For More Information

The SEC staff's no-action response is available at