What appears as a huge win for the Obama administration seems like a big loss to pharmaceutical giants Pfizer Plc and Allergan Plc, as the two firms decided to forego their mammoth $160 billion merger amid increased pressure from the U.S. government.

The cancellation of the deal serves as a significant victory for U.S. President Barack Obama, whose administration has taken on the task of preventing deals such as U.S.-based Pfizer and Ireland-based Allergan's proposed merger, which would result in the American company saving billions of taxes by moving overseas.

Had the deal been successful, Pfizer would have been able to cut its taxes by an estimated $1 billion annually. This is due to the difference in tax rates between the U.S. and Ireland, where Allergan is based. By domiciling in Ireland, Pfizer would have been able to escape a significant portion of its taxes in America, in what is popularly referred to as a tax inversion.

The deal between Pfizer and Allergan first made headlines back in November. Due to both of the companies' massive size, the deal, had it pushed through, would have been the biggest merger in the pharmaceutical world to date.

However, such mergers have been in the sights of the Obama administration for a while. The U.S. government has previously moved to discourage corporate maneuvers that result in tax inversions, culminating in a series of more aggressive and far more expansive rule changes on Monday, which were announced by the U.S. Treasury Department and the Internal Revenue Service.

With the merger falling into pieces amid increased pressure from the U.S. government, Pfizer would now be compelled to pay Allergan $150 million in order to cover the expenses of the planned merger so far.

Both companies have released announcements about the breakup of the merger, calling the decision a mutual agreement. Ian Read, the Pfizer chairman and chief executive, announced that the intricacies of the merger were scrutinized before the final decision was made.

"Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies. We remain focused on continuing to enhance the value of our innovative and established businesses," he said.

Brent Saunders, chief executive of Allergan, stated that though the breakup of the deal was disappointing, the Ireland-based pharmaceutical giant would continue to move forward nonetheless.

"While we are disappointed that the Pfizer transaction will no longer move forward, Allergan is poised to deliver strong, sustainable growth built on a set of powerful attributes," he said.

Shares of Allergan plunged in Tuesday trading, falling 15 percent. Pfizer shares, on the other hand, surged 1.3 percent.