Pfizer and Allergan are reportedly looking to jointly terminate their planned $160 billion merger following new US rules designed to curb so-called ‘tax inversion’ deals.

People familiar with the matter say that Pfizer’s board of directors has voted to abort the combination and are due to make an announcement soon, according to the reports. The terms of the merger agreement say that Pfizer will have to pay Allergan a break-up fee of up to $400 million, but some sources say it will be much lower than that. 

By merging under Ireland-based Allergan and moving it’s legal domicile out of the US, Pfizer would have been able to avoid US taxes on $128 billion of profits stored overseas. However, in new rules introduced this week, the US Government is limiting the benefits of ‘serial inverters’, companies that have acquired multiple US firms over a short period of time. This affects Allergan, which has been enlarged by a series of deals culminating in a takeover of US-based Actavis last year. 

The deal between Pfizer and Allergan would have been the largest in the history of the industry, and would have created the world’s largest pharma company, with a market capitalisation in excess of $300 billion.