May 2, 2014 / 6:35 AM / 6 years ago

UPDATE 8-AstraZeneca rejects Pfizer's raised bid of $106 bln

* AstraZeneca board rejects sweetened 50 stg/shr offer
    * Says offer "substantially undervalues" the company
    * Offer is 1.845 shares in new company, 15.98 pounds in cash
    * Pfizer pledges to keep Cambridge R&D centre and factory
    * 20 percent of R&D jobs in enlarged group to be in Britain

 (Adds links to story on Pfizer and Britain, another Breakingviews column)
    By Ben Hirschler
    LONDON, May 2 (Reuters) - U.S. drugmaker Pfizer Inc increased its
offer for AstraZeneca Plc to 63 billion pounds ($106 billion) on Friday,
but the British company promptly rejected the proposal, which would create the
world's biggest pharmaceuticals company.
    AstraZeneca's board said the offer undervalued the company  "substantially"
and was not an adequate basis on which to engage with its suitor.
    Industry analysts and investors said that raised the possibility that Pfizer
would now take the takeover plan, which would boost its pipeline of cancer drugs
and create significant tax and cost savings, direct to AstraZeneca shareholders.
    The U.S. group would much prefer an agreed deal, since hostile takeovers
typically take longer, require a higher final price and carry more risks because
the bidder cannot access the target's books to assess its business.
    One AstraZeneca investor said Pfizer management had made clear in meetings
this week that it wanted a friendly deal but it was determined to the see the
transaction completed and a hostile bid was a potential "tool".
    While Pfizer has given assurances to the British government on retaining
drug research in Britain, a spokesman for Prime Minister David Cameron said
AstraZeneca's fate would be determined by shareholders, not the state.
    Friday's 50 pounds ($84.47) a share indicative offer followed AstraZeneca's
decision to rebuff an earlier proposal that valued it at 58.8 billion pounds, or
46.61 pounds per share.
    Some investors and analysts had expected that the sweetened offer would be
enough to bring AstraZeneca's board to the negotiating table, even if it was not
accepted, and the swift rejection suggests Pfizer may now go over the board's
    "I think it's making it increasingly likely that Pfizer is going to come
back with a hostile bid," said Mick Cooper, analyst at Edison Investment
    Leading investors have met with Pfizer Chief Executive Ian Read this week in
London and some feel that an offer of 50 pounds or above is certainly worth
    "Given where the shares have come from, this doesn't look unreasonable," one
of AstraZeneca's 10 largest shareholders said of the latest Pfizer offer.
    AstraZeneca shares were trading at around 30 pounds a year ago, but
confidence in the company's cancer drug pipeline has built up strongly since
    "We expect Pfizer ultimately to have to sweeten its offer based on
discussions we have had with investors, many citing a price within the 52-55
pounds range and some above this, and our analysis of the EPS accretion for
Pfizer," said Mark Clark, an analyst at Deutsche Bank.
    Investors had previously said they were looking for at least 50 pounds a
share and also wanted more cash in the mix. The new offer would have given them
32 percent cash and 68 percent shares, little different from the 30-70 split
offered originally. 
    Many analysts are convinced Pfizer will raise its offer again, not least
because it wants to get the deal done before any possible change in U.S. tax
rules that might prevent it moving its tax base to Britain.
    Pfizer's latest proposal would have seen shareholders receiving, for each
AstraZeneca share, 1.845 shares in the combined company and 15.98 pounds in
    Commenting on the offer, AstraZeneca Chairman Leif Johansson said: "Pfizer's
proposal would dramatically dilute AstraZeneca shareholders' exposure to our
unique pipeline and would create risks around its delivery."
    He also highlighted the fact that the small cash component would leave
investors exposed to the risks faced by Pfizer in executing an ambitious
    Shares in the British group slipped back 0.2 percent to 48.07 pounds by 1335
GMT. The stock had already gained ground in late trading on Thursday on
speculation that Pfizer would come back with an improved offer, including a
larger cash element, and there was some disappointment that the cash component
had not increased more.
    Pfizer shares fell 0.5 percent in early New York trading.
    The takeover plan, which would be the largest acquisition of  a British
company by a foreign business, has stirred political controversy in Britain.
    In an attempt to smooth relations with the government, Pfizer CEO Read wrote
to Cameron, promising to complete a substantial new research centre planned by
AstraZeneca in Cambridge and retain a manufacturing plant in Macclesfield.
    The Cambridge site, in particular, is viewed as important to the development
of the so-called "golden triangle" of Britain's life sciences industry, spanning
Oxford, Cambridge and London. 
    Read also said that 20 percent of the enlarged group's research and
development workforce would be in Britain, which a Pfizer spokesman said would
represent a "very substantial" increase in its research efforts in the country.
    "We make these commitments for a minimum of five years, recognising our
ability, consistent with our fiduciary duties, to adjust these obligations
should circumstances significantly change," Read added in a letter to Cameron.
    Science minister David Willetts said Pfizer had moved a long way in its
commitments to British science and research, but the opposition Labour party was
scathing about the potential deal.
    "Pfizer has a very poor record on previous acquisitions. Do we really want a
jewel in the crown of British industry, our second biggest pharmaceutical firm,
to basically be seen as an instrument of tax planning?" said business spokesman
Chuka Umunna.
    Pfizer's reputation is under a cloud in Britain following a decision three
years ago to shut most of its research work at a large R&D centre in Sandwich,
southern England, where Viagra was invented, with the loss of nearly 2,000 jobs.
    Any eventual deal will be studied by antitrust regulators around the world,
including those in China, where scrutiny could be especially intense since
Pfizer and AstraZeneca rank No. 1 and No. 2 among multinational suppliers in the
country's prescription drug market. 
 ($1 = 0.5919 British Pounds)

 (Additional reporting by Paul Sandle, Kate Holton, Brenda Goh, Chris Vellacott
and Soyoung Kim; Editing by David Goodman, David Holmes and Will Waterman)
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below