Britain’s second largest pharmaceutical company AstraZeneca says No to Pfizer’s new offer. Pfizer had raised the bid to £63 billion ($106.22 billion) or £50 ($84.47) per share, but AstraZeneca (AZ) said it was not enough.
Many analysts said earlier this week that an improved Pfizer offer which valued shares at £50 would more likely get the AZ Board vote favorably.
Pfizer, the world’s largest drugmaker, had proposed a combination of the two companies in which AZ shareholders would receive, for each AZ share, 1.845 shares in the combined entity and 1,598 pence in cash, representing an indicative value of £50 ($84.47) per AstraZeneca share, based on the American company’s closing share price of $31.15 on May 1, 2014.
This was how AstraZeneca said “No” to Pfizer’s new offer:
“The financial and other terms described in the Proposal are inadequate, substantially undervalue AstraZeneca and are not a basis on which to engage with Pfizer. The large proportion of the consideration payable in Pfizer shares and the tax-driven inversion structure remain unchanged. Accordingly, the Board has rejected the Proposal.”
UK associations warn of R&D decline
Four prestigious scientific bodies had raised concerns over the negative effect a Pfizer deal might have on UK scientific research and development.
The Royal Society of Chemistry, British Pharmacological Society, Biochemical Society and the Society of Biology – which together have over 100,000 members – warned that recent mergers and acquisitions have resulted in laboratory closures. They added that a Pfizer takeover of AZ might undermine the development of new medications in the UK.
There is serious concern in the UK that R&D will suffer.
In their joint statement, the four bodies wrote:
“Whatever the outcome of Pfizer’s declared interest in taking over AstraZeneca, it is another sign of the global trend for pharmaceuticals. The UK has been a world-leader in medicines research and development, but recent closures and restructuring put this position under threat. Drug discovery is changing everywhere: large pharma businesses are consolidating and downsizing, with much of early-stage research coming from an innovation ecosystem of academia and SMEs.”
Pfizer writes to Prime Minister David Cameron
In a letter sent to British Prime Minister David Cameron, Pfizer’s CEO Ian read assured that on a successful merger/acquisition, Pfizer would:
- Establish the combined company’s corporate and tax residence in the United Kingdom.
- Complete the construction of AZ’s planned campus in Cambridge, creating a “substantial R&D innovation hub in Cambridge and the wider scientific community, which will include core research units, laboratory based scientific support lines and European clinical development and regulatory functions.”
- Employ at least 20% of the combined company’s global R&D workforce in the UK.
- Actively seek to locate production facilities of the combined company in the UK, “subject to the timing of the UK Patent Box proposals, and will retain substantial commercial manufacturing facilities in Macclesfield.”
- Base the combined company’s European business head office in the UK.
- Base the combined company’s European Union regulatory headquarters in the UK.
- Invite two or more AZ Board Member to join the new company’s Board.
Mr. Read concluded:
”Clearly, predictability and stability in the local and global commercial environment, as well as the UK Government’s efforts to maintain incentives for investment, are important factors to enable success. We make these commitments for a minimum of five years, recognizing our ability, consistent with our fiduciary duties, to adjust these obligations should circumstances significantly change.”
“Our Board has endorsed these commitments in a formal Pfizer Board resolution and will publish a statement describing these promises to the British public. In reflection of the binding nature of these commitments, we are including this letter in our public announcement issued pursuant to the UK Takeover Code regarding the possible combination.”
“As mentioned above, we view our partnership with the UK Government as a critical part of this potential transaction. We look forward to continued discussions with you.”
Protect national interests, say UK politicians
Former deputy prime minister, Conservative peer Lord Heseltine, said in an interview with the BBC that takeovers of British companies by foreign firms “could be very helpful,” but added that the UK should do more to protect its national interests.
Pfizer has a history of acquiring other pharmaceutical companies and then scaling down R&D (research and development) significantly. One year prior to Pfizer’s acquisition of Wyeth, Pfizer spent almost $8 billion on R&D and Wyeth spent $5 billion. Five years after the takeover Pfizer spent just $6.55 billion.
US companies are interested in moving their headquarters to the UK for tax reasons. Federal corporation tax in the US is 35%, compared to just 21% in the UK. There are plans to reduce it to 20% in the UK in 2015.