AstraZeneca awaits Pfizer’s next bid - Commentary
After two days of cross-examination by members of the UK parliament, Pfizer and AstraZeneca have returned to their bunkers to plot their next moves.
Pfizer has until 26 May to make a third and improved bid for AstraZeneca, and the value of this bid is what will determine the outcome of this high profile courtship.
While the two days of grilling by MPs on Tuesday and Wednesday produced some interesting soundbites from the chief executives, MPs and others, nothing emerged to derail Pfizer's bid.
Indeed, the testimony of AstraZeneca's chief executive Pascal Soriot was the most telling, clearly exposing mixed signals. On Tuesday Soriot said a merger would be a distraction, and even made an emotive claimed that new cancer drugs could be delayed because of it. However, later that day he told the BBC's Newsnight that a merger offer could be accepted, if the price and conditions were right.
Soriot and AstraZeneca have been working hard to demonstrate how far the company has turned around its once ailing pipeline - but the prime aim of this is to pressure Pfizer to produce the highest possible bid, rather than repel its advances.
Tactically, this is how Soriot must act to drive up a takeover offer, but it is a difficult position for MPs, unions and observers in the UK science community to decode, especially when many of them wholeheartedly oppose the merger.
No new assurances
The two House of Commons committees – Business, Innovation and Skills and Science and Technology had called the hearings with the overarching aim of obtaining assurances that the UK pharmaceutical sector would not be damaged by a merger.
However, Pfizer's CEO Ian Read gave no new assurances that the company would not cut jobs and investment after its already promised a five year period of guaranteed investment. Read admitted that Pfizer would 'probably' spend less than the combined R&D budgets of the two companies, and said: "there will be some job cuts" - but neither of these remarks were unplanned, and were entirely unsurprising given the nature of pharma mergers and acquisitions.
Ian Read said the company was a 'straight talking' one, and would honour any pledges it made – but made sure these pledges were strictly limited.
In a heated debate in the House of Commons with the Labour leader of the Opposition David Miliband yesterday, Prime Minister David Cameron said he was seeking the "strongest possible" guarantees about jobs and investment.
Given Pfizer's long track record of absorbing companies through mergers and ruthless cuts to R&D and other functions, leaders in the UK science community remain concerned.
Sir Paul Nurse, one the UK's most distinguished research scientists wrote to the two committees to express his fears.
"These commitments are vague, come with caveats and have an inappropriate time scale. For example a five year commitment to the UK is insufficient. A commitment of at least 10 years is required."
He added: "Science is not a quick win sector – it requires long term investment."
Despite such concerns, it looks unlikely that the UK's coalition government will use any of its powers to block the merger, a move which Business Secretary Vince Cable said would be 'tricky'.
The proposed merger, which would be the biggest ever takeover of a UK company, will almost certainly be subject to a review by the European Commission, however.
While this will involve a detailed review of the proposal, the Commission usually only blocks mergers on grounds of anti-competition, and the Pfizer- AstraZeneca tie-up would not present any obvious problems, such as potential monopolies within certain markets.
The 'Own It' coin
This means the impetus is still with Pfizer, and AstraZeneca's shareholders are simply waiting for Pfizer to produce a raised bid. The greatest jeopardy for Pfizer is likely to be a ceiling on the cash / share split it can offer for AstraZeneca without breaking US tax regulations on such moves.
Despite these hurdles, Pfizer does have the cash – including $69 billion in foreign earnings it has avoided repatriating to the US to avoid taxes. Ian Read also surprised MPs and the watching world on Tuesday when he produced a 'Pfizer coin' from his pocket, a corporate talisman issued to employees.
Read explained how it was used within Pfizer to cut through internal hierarchies, and allow 'straight talking'. On one side of the coin is 'Straight Talk' and on the other face, 'Own It'. Read said this refers to all employees needing to have 'ownership' of issues within the company – but it clearly also symbolises his own drive to acquire AstraZeneca.
Links
Click here for the full video of yesterday's committee hearing and here for the Tuesday session
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