UK: Improved Pfizer offer rejected by AstraZeneca
12:00 19 May 2014
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AstraZeneca appeared to bring an end to a protracted takeover attempt by US drugs giant Pfizer as it rejected an improved final offer of £69 billion as inadequate.
The UK-based firm said the Viagra maker’s proposal last night undervalued it by £5 billion and claimed it was motivated by tax saving and cost cutting plans.
Astra shares plunged by as much as 15% as the prospect of a deal faded yet chairman Leif Johansson admitted he had “no idea” whether the saga was over.
One leading investor said Pfizer’s offer was a “good price” though it could do better, while an analyst suggested the American firm could come back with a fresh approach in six months.
Astra’s statement echoed fears expressed by critics that a deal would hit jobs and damage the UK’s science base, and they urged the board to continue to stand firm against the mega-merger.
But the FTSE 100 company for the first time revealed a price at which it might be prepared to consider a deal - subject to other key concerns being addressed.
AstraZeneca’s rejection came after a “fourth and final” proposal from Pfizer last night as a deadline for making a firm offer by next Monday afternoon loomed.
It insisted that the terms undervalued the company and its “exciting prospects”, though a fall in shares in the wake of the announcement left its market value nearly £18 billion lower than what Pfizer was prepared to pay.
Astra said the deal would bring “uncertainty and risk”, also highlighting controversial plans to re-domicile a newly-merged company in the UK for tax purposes, and the fact that the takeover offer was mainly comprised of shares.
Mr Johansson said: “Pfizer’s approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimisation.”
He said that from the time of initial talks in January, the US company had “failed to make a compelling strategic, business or value case”.
It came after a weekend of talks involving senior executives after Pfizer upped its offer from a previous £50 a share to £53.50 on Friday, before raising this again to £55 on Sunday evening.
The US giant’s Scottish-born chief executive Ian Read urged the Astra board to engage in “meaningful dialogue”, saying the offer represented “compelling and full value” and adding: “The time for constructive engagement is running out.”
But Astra indicated it would not consider anything less than 10% above the £53.50 offer, or £58.85, valuing it at £74.3 billion, and that the £55 proposal represented only a “minor improvement”.
It also outlined four key points underlying its rejection of the deal, starting with planned cost-cutting which would “imply a meaningful reduction in research and development potential and capabilities”.
In addition, Astra said integration would risk “significant disruption” to the delivery of its new drugs - echoing chief executive Pascal Soriot’s claim before MPs that life-saving medicines could be delayed by the distraction caused.
The UK firm pointed as well to Pfizer’s past record, saying its previous large-scale takeovers had “highlighted the challenges around the negative impact of integration on research and development productivity and output”.
Finally, Astra expressed concerns about the impact of plans by the US firm to separate out its operations into three business units.
In addition, the rejection statement repeated the concern expressed about the “tax-driven inversion structure” of the deal.
This refers to the controversial proposal to re-domicile the newly merged giant to the UK for tax purposes while maintaining corporate headquarters in the US and a listing on the New York Stock Exchange.
The company also pointed to the fact that the majority of the offer was still in the form of shares, which many Astra investors would have to sell - though Pfizer’s final offer had increased the cash element from 33% to 45%.
Yet when Mr Johansson was asked on BBC Radio 4’s Today programme when the saga would be over, he said: “I have no idea.
“This has been going on for quite some time and we have been in very deep engagement over the whole of the weekend, if Pfizer now says this is the final offer I have to believe what they say.”
Pfizer said that it would not make a hostile offer direct to Astra shareholders, instead urging them to press the company’s board to begin substantive talks.
Edison Investment Research analyst Mick Cooper said this suggested the UK firm had succeeded in shoring up the support of institutional shareholders.
He said they were banking on getting better returns from a standalone AstraZeneca than from the cash and share combination on offer from Pfizer now, but that the US firm could come back for another attempt if this does not look likely.
“AstraZeneca will have six months to demonstrate that it was right to reject Pfizer’s offer, or face the prospect of a fresh approach.”
Anne Richards, chief investment officer at leading investor Aberdeen Asset Management, told Today: “I think the price is finely balanced.
“I think it’s a good price that’s on the table at the moment, but probably they could do better than that.”
Allan Black, national officer at the GMB union, said: “We call upon the AstraZeneca board to continue to reject Pfizer’s approach and we call upon the institutional investors to break the habit of a lifetime and look beyond a quick buck.”