Pfizer’s pursuit of AstraZeneca

June 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

American drug manufacturer Pfizer Inc’s pursuit of AstraZeneca plc hit yet another hurdle in May as the British-Swedish firm rejected an improved ‘final’ offer of around $118bn. The sweetened offer for AstraZeneca was rejected out of hand by AstraZeneca’s board who felt that it substantially undervalued the company.

Pfizer had hoped that the latest offer would be sufficient to secure a deal after Pfizer had four earlier bids rejected in May. The latest offer valued each AstraZeneca share at $95.52 – a 45 percent premium over the company’s share price in mid-April. In order to complete the deal Pfizer also increased the cash element to 45 percent. AstraZeneca’s shareholders would have received 1.747 shares in the newly merged company for each of their AstraZeneca shares and £24.76 in cash. Pfizer’s chief executive Ian Read said he believed his company’s proposal was “compelling” for shareholders and expressed his frustration at AstraZeneca’s refusal to engage in talks. Although Pfizer noted that it would not make a hostile offer directly to AstraZeneca’s shareholders and would only proceed with an offer with the recommendation of the company’s board, Mr Read did urge AstraZeneca’s shareholders to pressurise the board into opening discussions about a future sale to Pfizer. “We do not believe that the AstraZeneca board is currently prepared to recommend a deal at a reasonable price.”

If the parties had agreed terms, the deal would have represented the largest ever acquisition of a British company by a foreign business, as well as the largest deal completed in the pharmaceutical sector since Pfizer acquired American firm Warner-Lambert for $90bn in 2000. “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 minimization,” Leif Johansson, AstraZeneca’s chairman, said in a statement. “From our first meeting in January to our latest discussion yesterday, and in the numerous phone calls in between, Pfizer has failed to make a compelling strategic, business or value case. The board is firm in its conviction as to the appropriate terms to recommend to shareholders.”

Following the initial unsuccessful bids for the company, AstraZeneca’s board announced that it would only consider offers that were worth at least £58.85 per share. Pfizer has declared that its £55 ($95.52) bid would be the company’s final offer.

There was a great deal of concern within Britain surrounding the potential acquisition of AstraZeneca. The deal was met with suspicion in both the political and scientific communities. Following the company’s second offer for AstraZeneca, Pfizer wrote an open letter to British Prime Minister David Cameron in order to allay any concerns about the potential takeover that may have remained. Four scientific bodies in particular – the Society of Biology, the Biochemical Society, the British Pharmacological Society and the Royal Society of Chemistry – all raised fears about potential British lab closures in the event the deal completed. According to Pfizer, the company intended to proceed with AstraZeneca’s planned research and development (R&D) facility in Cambridge, and retain the firm’s existing manufacturing facilities in Macclesfield.

The proposed merger also met some political resistance in Sweden, where the government made a concerted effort to oppose it. There were fears in Sweden that the deal would also lead to cuts in scientific jobs and overall research activity. Furthermore, a number of American politicians raised questions about the nature of the deal, citing Pfizer’s plans to reincorporate in Britain to avoid paying higher corporate taxes in the US.

Pfizer’s interest in AstraZeneca was laid bare in May as the firm reported first quarter revenue well below Wall Street expectations. Pfizer experienced declining revenue in early 2014 as a result of falling sales of a number of its key brands and generic drugs. Q1 revenue for the company fell 9 percent to $11.35bn, $730m below Wall Street expectations for the quarter. Pfizer earned $2.33bn, or 36 cents per share, in the quarter. By comparison, one year earlier the company earned $2.75bn, or 38 cents.

Richard Summerfield