Pfizer declares interest in AstraZeneca mega-merger

Pfizer has confirmed its interest in acquiring AstraZeneca in a deal worth around $100 billion – but has stopped short of launching a renewed bid.

The US-based firm has issues a statement after rumours of an approach to AstraZeneca emerged last week.

Pfizer has confirmed that it made an offer of £46.61 ($76.62) per AstraZeneca share in January – a premium of around 30% to AstraZeneca’s closing share on 3 January 2014, and valuing the firm at £58.8 billion ($98.9 billion).

Speaking to investors and analysts last week, AstraZeneca’s chief executive Pascal Soriot made it clear that the company wasn’t interested in a merger, without directly referring to the Pfizer approach.

Now Pfizer’s chief executive Ian Read has gone public with his belief that the deal would be beneficial to both companies and their shareholders. The US firm is currently looking to agree a deal with AstraZeneca without resorting to a hostile takeover bid.

Attempting to woo AstraZeneca’s directors and shareholders, Pfizer’s Ian Read said: “”We have great respect for AstraZeneca and its proud heritage as an innovation-driven biopharmaceutical business with a rich science-based foundation in both the United Kingdom and Sweden.

“In addition, the United Kingdom has created attractive incentives for companies to manufacture products and maintain and protect intellectual property, and we have seen that capital and jobs have followed these types of incentives.”

Of greatest interest to Pfizer is AstraZeneca’s presence in a handful of key therapy areas – oncology, cardiovascular disease and diabetes.

Read added: “We believe patients all over the globe would benefit from our shared commitment to R&D, which is critical to the future success of the pharmaceutical industry, in the form of potential new therapies that help to fight some of the world’s most feared diseases, such as cancer.

Pfizer says any merger of the two companies would see the newly enlarged Pfizer becoming a UK-incorporated holding company, with the head office remaining in New York but with some senior management also retained in the UK.

This approach is likely to reflect a number of factors. First among these is that an acquisition of a foreign owned company makes sense for Pfizer, which currently has billions earned outside the US, which it is avoiding repatriating in order to avoid heavy taxation. Creating a UK incorporated company would help avoid any claim on the deal by US tax authorities. In addition, retaining a UK base for the firm would allow AstraZeneca’s existing R&D to retain autonomy within the Pfizer group, seen as essential following previous pharma deals in which research expertise was lost in mega-mergers.

AstraZeneca is in the midst of a major reorganisation, and is currently planning to relocate its global headquarters (currently in London) and R&D HQ (currently near Manchester) on one site in Cambridge (UK) from 2016.

 

Private approach rejected

AstraZeneca has now released a formal response to Pfizer’s remarks.  It says following a meeting between Pfizer’s Ian Read and AstraZeneca’s chairman Leif Johansson in New York on 5 January, Pfizer made its offer to AstraZeneca, which its board then concluded “very significantly undervalued” AstraZeneca and its prospects. The firm said it also highlighted its concerns regarding the proposed transaction structure, much of which was made up of Pfizer shares. The AZ board also raised concerns about the ‘execution risks’ associated with the proposed inversion structure in which Pfizer would redomicile to the UK for tax purposes. AstraZeneca wrote to Pfizer on 12 January rejecting the proposal, and says Pfizer replied three days later informing AstraZeneca that it was no longer actively considering an offer.

The firm is now understood to have hired Goldman Sachs and Morgan Stanley to help it mount a defence against Pfizer’s expected renewed bid. Under UK takeover rules, Pfizer has until 26 May to make clear its intentions, setting a date for a formal bid or closing the matter.

Some analysts predict that the merger is overwhelming likely to go through. Pfizer’s interest has caused huge concern in the UK about the potential threat to the UK’s science base – however the government has made it clear it would not intervene to block any merger. When quizzed about the mooted deal on Friday, the UK’s Chancellor (finance minister) George Osborne said it would be “a commercial matter between the companies”.

Pfizer will hold an analyst and investor call later today where the company is expected to set out its case for the deal’s synergies and savings.

Pfizer’s potential $100 billion plus bid for AstraZeneca is part of a new wave of deals in the pharma sector – most notably the groundbreaking deal announced last week which saw the Novartis swap its vaccines business for GSK’s oncology franchise.

Links

Novartis and GSK’s multi-billion dollar swaps to transform both companies

AstraZeneca and MRC to create new centre for early drug discovery in UK

 

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