May 2, 2014 09:32PM
By Danica Kirka and Linda A. Johnson
LONDON — Pharmaceutical company AstraZeneca on Friday flatly rejected drug maker Pfizer’s sweetened takeover bid — worth $106 billion — just hours after it was levelled, describing it as inadequate.
After being rebuffed twice, Pfizer Inc., the maker of Viagra, made a third attempt for the London-based rival on Friday, offering 50 pounds ($84) a share in cash and stock, a 7.3 increase on its last bid. The deal would be the biggest-ever foreign takeover of a British business.
But AstraZeneca’s board said the terms were not right and the price substantially undervalued the company. The Anglo-Swedish firm said the potentially lucrative “pipeline” of new drugs it is developing would be disrupted by a takeover and its possible consequences.
“Pfizer’s proposal would dramatically dilute AstraZeneca shareholders’ exposure to our unique pipeline and would create risks around its delivery,” said Leif Johansson, the chairman of AstraZeneca. “As such, the board has no hesitation in rejecting the proposal.”
Pfizer’s bid early Friday comes amid a spate of mergers and acquisitions in the pharmaceutical industry, which is moving to consolidate gains as the patents on some top earners expire. Besides getting access to a pipeline with promising assets, particularly in immuno-oncology, analysts suggest that the deal gives Pfizer tax advantages.
“There is a highly compelling strategic, business and financial rationale for combining our businesses, with significant benefits for shareholders and stakeholders of both companies,” Pfizer CEO Ian Read said in a statement announcing the offer.
But the move quickly became political in Britain. Critics fear the takeover could mean big job cuts, and the potential loss of stature in the country’s science sector.
Cognizant of the concerns, Pfizer sent a letter to Prime Minister David Cameron, promising to keep the company’s corporate and tax residence in England. It said that the “golden triangle of Oxford, Cambridge and London” — where a significant portion of British scientific research is based — would represent a vital component of the deal.
Cameron responded within a few hours, declaring that while the government regards the potential takeover bid as a matter for the respective boards, the government was “determined to secure great British science, research and manufacturing jobs in the life sciences sector.”
“The government will consider these proposals carefully as to whether they offer sufficient protection of our priorities,” Cameron said.
Britain is investing millions of pounds into boosting science in the so-called “Golden Triangle” in the country’s southeast. Only last month, London Mayor Boris Johnson announced a new investment organization meant to attract life sciences corporations and to facilitate collaboration between companies and researchers.
Besides access to the intellectual capital, some analysts say the main impetus for Pfizer’s interest in AstraZeneca is a wish to limit a potential tax hit. They suggest Pfizer has earned and held billions of cash overseas that it would have to pay taxes on at relatively high U.S. rates should it be brought back.
“Once the cash is offshore, the potential tax cost of repatriating it to the U.S. makes it much more attractive to find other homes for it — such as making foreign acquisitions,” said tax specialist Heather Self of the law firm, Pinsent Masons.
Other observers, like Alex Arfaei, the pharmaceutical analyst for BMO Capital Markets in Toronto, said the deal represents a unique opportunity.
“It allows Pfizer not only to significantly lower its taxes ... but also to optimize its vast commercial infrastructure following the loss of exclusivity of some big blockbusters like Celebrex and significantly boost its pipeline with some very promising assets, particularly in immuno-oncology,” he wrote.
Pfizer is the world’s second-biggest drugmaker by revenue, with sales of $51.6 billion last year and staff of 77,700. AstraZeneca PLC ranks eighth, with sales of $25.7 billion last year and 51,500 employees worldwide. AstraZeneca was created in 1999 through the merger of Sweden’s Astra and Britain’s Zeneca.
Paul Nurse, the president of the Royal Society, said that whatever the outcome of the takeover bid, it remains vital to the U.K. economy to invest in research.
“Sadly, too much of the focus of this debate has been on current share values, tax breaks and the short term profits that can be made on the deal,” Nurse said. “This is exactly the sort of ‘get rich quick’ culture that brought the global economy to its knees a few years ago.”