Pfizer and Allergan have terminated their $160 billion merger in an abrupt end to the largest healthcare deal yet after the US government cracked down on corporate tax inversions.

The US Treasury Department’s proposed new rules to deter companies from using acquisitions to shift their tax addresses overseas drove the decision, the companies said Wednesday in a statement.

New York-based Pfizer will pay Allergan $150 million in reimbursement for expenses associated with the failed transaction.

Both companies are now left looking for their next move – another deal, in Allergan’s case.

"While this was not Plan A, we were prepared for this," Allergan chief executive Officer Brent Saunders said in an interview on Bloomberg TV Wednesday. "We're going to go and look to find assets that complement and increase our growth profile."

Pfizer, meanwhile, said it will decide whether to pursue a potential split of the company by no later than the end of this year. The split would probably involve two parts: one focused on new drug development, the other on selling older medications.

“The fact that the company is talking about the original split-up decision timeline of late 2016 almost seems to suggest they have given up on inversion,” Timothy Anderson, an analyst at Sanford C. Bernstein said of Pfizer’s decision.

about whether he might be interested in buying Valeant Pharmaceuticals International's eyecare unit, Bausch and Lomb, Allergan's Saunders demurred, though did call it a premier asset. He declined to comment directly on what companies he might look at next.

The termination represents a victory for President Barack Obama, whose administration proposed tougher-than-expected new rules aimed at making inversions like the Pfizer-Allergan deal harder to achieve.

In an inversion, a company shifts its tax address overseas, often through a merger.

Mr Saunders said it wouldn’t have been in the best interests of his shareholders or Pfizer’s to fight the new rules.

“It would have been a long, protracted, expensive fight,” he said during the interview. “Perhaps we could have won, but that’s not a fair position to put our shareholders in, particularly when our standalone prospects, our growth prospects, our pipeline is so strong.”

With the Treasury rule, tax inversions – dozens of which were performed by US companies seeking to escape the country’s 35 per cent corporate tax rate -- appear to be largely over.

”Inversions are dead,” said John Schroer, sector head of healthcare at Allianz Global Investors.

Josh Earnest, a White House spokesman, said Tuesday that the administration hoped its new proposals would stop the transactions.

Allergan, which is run from New Jersey but has a legal domicile in Dublin, last year agreed to merge with Pfizer in a deal that would have given the New York-based company an Irish address and a lower tax rate.

Pfizer shares rose 1.2 per cent to $31.75 at 9:44 in New York, while Allergan gained 1.3 per cent to $239.65, although it has lost almost a quarter of its market cap since it first emerged MOnday that the deal was likely to be scrapped.

Allergan held a call on Wednesday at 10am to discuss the breakup and the company’s next steps.

Pfizer still plans to report first-quarter earnings on May 3rd. – Bloomberg