Updated on April 6 at 7:33 a.m. ET

Pfizer has called off its proposed $160 billion merger with Allergan, a deal that would have moved the biggest American drug maker to Ireland to reduce the company’s taxes. The decision, which came Wednesday morning, followed rules this week announced by the U.S. Treasury Department that targeted such deals, which are known as inversions.

“Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies,” Ian Read, Pfizer’s chairman and CEO, said in a statement. “We remain focused on continuing to enhance the value of our innovative and established businesses.”

He added that Pfizer planned to make a decision on whether to split its
“innovative and established businesses” by no later than the end of this year.

Pfizer will pay Allergan $150 million for reimbursement of expenses associated with the now-cancelled merger.

News of the merger was first announced last November. Under the deal, New York-based Pfizer would merge with Dublin, Ireland-based Allergan, and move the U.S. drugmaker’s headquarters to Ireland, but keep its business in the United States. This transaction would have effectively lowered Pfizer’s U.S. tax bill. The entire process is known as a corporate inversion—though this particular merger was technically not one because it was structured to make it look like the smaller Dublin-based drug maker was buying Pfizer.

News of the Pfizer-Allergan merger, which would have created the world’s biggest drug manufacturer, was immediately criticized in the U.S. as unpatriotic by both Republican and Democratic presidential candidates. Indeed as my colleague Bourree Lam noted at the time: “In the morning, [the news] relayed an image of a blockbuster merger that will produce the world’s biggest pharmaceutical company. By the afternoon, the story was a grim picture of a U.S. corporation dodging taxes by seeking refuge on Irish shores.”

At the time, though, few experts thought Pfizer’s deal with Allergan would be blocked by U.S. regulators. Then came the Treasury Department’s new rules Monday, which President Obama said would help plug “one of the most insidious tax loopholes out there, fleeing the country just to get out of paying their taxes.”

Those rules made it more difficult for certain kinds of inversions—especially ones involving “serial inverters,” companies that have done this several times. Pfizer’s proposed deal with Allergan came under special scrutiny because the Dublin-based company is itself the product of several inversions. Under the new rules, many of the deal’s tax benefits were eliminated.

“While we are disappointed that the Pfizer transaction will no longer move forward,” Brent Saunders, the Allergan chief executive and president, said in a separate statement, “Allergan is poised to deliver strong, sustainable growth built on a set of powerful attributes.”