* Initial 30 pct cash component too low for AZ investors
* Pfizer may give more cash but limited by UK domicile move
* "White knights" thin on ground, Amgen said not interested
By Ben Hirschler and Simon Jessop
LONDON, April 29 U.S. drugmaker Pfizer
will need to raise its bid for AstraZeneca to around
$105-110 billion and increase the proportion of cash in the
offer to win its British rival, investors believe.
After showing his hand and pressuring his smaller competitor
on Monday by disclosing two bid approaches, both of which were
rebuffed, Pfizer CEO Ian Read has until May 26 to "put up or
shut up" under UK takeover rules.
Importantly, after a jump in Pfizer shares, Read knows he
has the backing of many of his own shareholders, while the
threat of a counterbid does not appear imminent.
Read and his team will be using the time available to
consider how they can sweeten an offer made in January worth
58.8 billion pounds ($98.8 billion), or 46.61 pounds a share,
comprising 30 percent cash and 70 percent shares.
AstraZeneca said that offer fell "very significantly" short
and it specifically flagged the small cash component, which
would leave investors exposed to the risks faced by Pfizer in
executing an ambitious mega-merger.
So far, the British group has refused to talk to Pfizer -
but it has not ruled out discussions altogether and one person
close to the company said the cash component of any fresh offer
would be key in determining if there was engagement in future.
Cash is uppermost in the minds of AstraZeneca shareholders,
"For it to move forward from here, they (Pfizer) need to
find a way of getting Astra management engaged and that feels
like it needs a specific value being applied to the group, and
it needs the cash element to be higher," said Alastair Gunn of
Jupiter Fund Management, which is a top-20 investor in
Analysts at Jefferies believe a deal could get done with
Pfizer offering a 50/50 split between cash and shares at a price
of at least 50 pounds a share.
Several investors contacted by Reuters confirmed they were
looking for 50 pounds a share or more, with Neil Veitch of SVM
Asset Management predicting an agreed deal somewhere between 52
and 53 pounds.
Because a key goal of the planned takeover is to get the tax
advantages of re-domiciling the enlarged group in Britain, there
is a limit to how much cash Pfizer can offer, since at least 20
percent of its shareholders are required to be UK-based.
"We estimate Pfizer will need to issue a minimum of around
$55 billion in shares to comfortably meet this requirement,"
Based on the original 30 percent cash element, Moody's
analyst Michael Levesque said Pfizer could fund the whole of the
cash portion with offshore funds.
Pushing the cash element to 50 percent, however, would
require taking on some incremental debt.
SORIOT CANVASSES INVESTORS
AstraZeneca CEO Pascal Soriot, whose efforts to revive the
firm's drug pipeline have proved a key draw for Pfizer, will now
be canvassing the views of shareholders as a "priority", with
machinery in place for meetings with big and small investors,
two people close to the company said.
Soriot and chairman Leif Johansson will also be weighing
strategic alternatives for the drugmaker, including the
potential spin-off of non-core therapy areas like infection and
neuroscience, as well as possible acquisitions.
But "white knight" counterbidders ready to take on Pfizer
are likely to be thin on the ground - not least because few
other companies would enjoy the same cost and tax benefits from
acquiring AstraZeneca as Pfizer.
Amgen is one player for whom an AstraZeneca deal
might make sense, since the two companies are co-developing a
number of drugs, but a person familiar with the U.S. biotech
firm said on Tuesday it was not interested in entering the fray.
French drugmaker Sanofi is another company with
the heft and M&A experience to consider intervening, yet its CEO
Chris Viehbacher said on Tuesday he planned to stick to smaller
GlaxoSmithKline, the British company with arguably
the greatest potential to extract synergies from buying
AstraZeneca, has meanwhile said for several years it is not
interested in large deals.
($1 = 0.5950 British Pounds)
(Additional reporting by Anjuli Davies; Editing by Mark Potter)