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May 19, 2014

Pfizer Strikes Out with AstraZeneca

  • Pfizer’s so-called final £69 billion ($116 billion) offer for AstraZeneca fared no better than several past recent attempts, with the British-based pharma yesterday turning down the offer flat, and leaving uncertain what if anything its eager U.S. suitor will do next.

    AstraZeneca’s board quickly rejected Pfizer’s £55 ($92.56) per share offer—£24.76 ($41.67) per share in cash (45%) and 1.747 Pfizer shares (55%) per AstraZeneca share. The board contended that Pfizer’s offer significantly undervalued AstraZeneca at a time when it was making progress in rebuilding its patent cliff-depleted pipeline and returning to revenue growth by 2017.

    AstraZeneca’s rejection came just two days after Pfizer offered £67 billion (almost $113 billion), based on a value of £53.50 ($90.04) per share—£21.57 ($36.30) in cash (40%) and 1.845 Pfizer shares (60%) per AstraZeneca share. That offer was quickly turned down by AstraZeneca’s board.

    Both companies have little to show for months of talks than a set of dueling press releases.

    Leif Johansson, Chairman of AstraZeneca said publicly that Pfizer’s Friday offer led to talks between leaders of both companies early yesterday, during which Pfizer leaders said it would consider “only minor improvements” to the proposal.

    “In response, we indicated, even assuming that other key aspects of any proposal had been satisfactory, that the price at which the Board of AstraZeneca would be prepared to provide a recommendation would have to be more than 10% above the level contained in Pfizer’s Friday Proposal,” Johansson said in a statement.

    AstraZeneca’s release pointedly noted that Pfizer sweetened its Friday proposal with a “final” offer delivered “a few hours later, without prior notice to AstraZeneca and contrary to a previous statement that the Friday offer was final and would not be amended.”

    “The Final (Sunday) Proposal is a minor improvement which continues to fall short of the Board’s view of value and has been rejected,” AstraZeneca added.

    Johansson dismissed Pfizer’s interest in AstraZeneca, saying it “appears to be fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimization.

    “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,” Johansson added.

    Not so, countered Pfizer CEO Ian Read.

    “We have tried repeatedly to engage in a constructive process with AstraZeneca to explore a combination of our two companies. Following a conversation with AstraZeneca earlier today, we do not believe that the AstraZeneca board is currently prepared to recommend a deal at a reasonable price,” Read said in a statement.

    “We remain ready to engage in a meaningful dialogue but time for constructive engagement is running out. We have said from the beginning that we will remain disciplined in the price we are willing to pay and we will not depart from that guiding principle,” Read added. “We believe that our proposal represents compelling and full value for AstraZeneca and that other issues that have been raised by AstraZeneca do not represent material difficulties.”

    One potential hurdle to a deal has been raised not by AstraZeneca but by the UK government of Prime Minister David Cameron. It is seeking guarantees that Pfizer will not eliminate jobs and operations in the kingdom – as it did when it shut down shut down the Sandwich R&D site in Kent, eliminating more than 1,500 jobs.

    Pfizer has committed itself to carrying out restructuring plans announced by AstraZeneca last year to establish one of its three global research hubs in Cambridge, U.K., and promised that 20% of a combined Pfizer-AstraZeneca R&D workforce would be based in the kingdom. Numerous officials, however, are seeking to spare all current AstraZeneca U.K. operations from cutbacks.

    Pfizer said it reserved the right to make a new offer for AstraZeneca less than its final offer under four circumstances:

    • With the agreement or recommendation of the AstraZeneca board
    • If a third party announced a firm intention to make an offer for AstraZeneca which was lower than Pfizer’s last bid on the date Pfizer announced a firm intention to make an offer for AstraZeneca
    • If AstraZeneca announces a “whitewash” deal or reverse takeover for Pfizer
    • If AstraZeneca declares a second-quarter dividend, due to be announced July 31, that exceeds a consensus analyst forecast of 53.5 pence (90 cents) per share

    Pfizer stated that it would not attempt a hostile takeover of AstraZeneca—as Valeant Pharmaceuticals International is attempting with Allergan. That has left analysts and others expressing uncertainty about Pfizer’s next move—while guessing that only angry AstraZeneca shareholders can ultimately compel their company and Pfizer to work out a deal.

    Giving credence to the possibility of angry shareholders, at least at AstraZeneca, is the 13% drop in the company’s share price on the London Stock Exchange, to £42.04 ($70.76) per share on Monday morning, hours after news of the latest board rejection surfaced. As a result, AstraZeneca's market value fell to £53 billion ($89 billion), £16 billion (about $27 billion) less than Pfizer’s last offer, but below the £74 billion ($124.5 billion) that AstraZeneca’s board said it was seeking in order to recommend to its shareholders an acquisition by Pfizer.

    “We are disappointed the board of AstraZeneca has rejected Pfizer’s latest offer so categorically,” Alastair Gunn, co-manager of Jupiter Distribution Fund and Jupiter High Income Fund, said in an e-mailed statement to Bloomberg News. “They should have at least engaged in a constructive conversation with Pfizer on the details of the offer to assess the opportunities that a combined entity could bring.”

    Savvas Neophytou, an analyst at Panmure Gordon, told The Guardian that he thought shareholders could yet force AstraZeneca to talk to Pfizer: "There is a lot going on and I suspect there are more developments to come.” 


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