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May 2, 2014

Pfizer Woos U.K. Prime Minister with Jobs, R&D Promises as AZ Spurns $106B Bid

Pfizer Woos U.K. Prime Minister with Jobs, R&D Promises as AZ Spurns $106B Bid

Source: © Gary Blakeley - Fotolia.com

  • AstraZeneca isn’t the only one Pfizer is trying to sweet-talk these days. The U.S. pharma giant, whose sweetened £63 billion ($106 billion) acquisition bid was rejected earlier today, is now wooing U.K. officials with promises to keep a significant number of jobs and operations in the kingdom if it wins the U.K. pharma that has been the original object of its affection.

    Pfizer has submitted a letter to U.K. Prime Minister David Cameron detailing how it will heed his request that Pfizer commit to keeping jobs and operations in the U.K. should it succeed in buying AstraZeneca.

    Specifically, 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. Pfizer also said it would locate manufacturing operations in the U.K., while retaining AstraZeneca’s existing manufacturing facility in Macclesfield, and invite two AstraZeneca board members to sit on Pfizer’s board of directors.

    The letter followed days of meetings this week between Pfizer CEO Ian Read and British officials, including Chancellor of the Exchequer George Osborne, Business Secretary Vince Cable, and Minister for Universities and Science David Willetts.

    “Establishing the world's largest research-based pharmaceutical company in the U.K., together with the commitments made in this letter represent a strong indicator of the incentives that your government has created to attract successful business to the U.K.," Read wrote.

    A spokesman for the Cameron government welcomed Pfizer’s commitments.

    "The letter from the chief executive of Pfizer is a positive sign with significant undertakings on research, jobs and investment. The Government will consider these proposals carefully as to whether they offer sufficient protection of our priorities,” the unnamed spokesman said in a Press Association wire service report.

    “The Government is determined to secure great British science, research and manufacturing jobs in the life sciences sector. We want to see the sector continue to flourish and grow, with Britain retaining its scientific leadership and key R&D operations for the long-term, as well as its role as a leading manufacturing base. That is also the clear and consistent message we have given to Pfizer,” the spokesman added.

    Willetts told the BBC separately that Pfizer has changed its position in recent days on a U.K. presence: “Their letter has a set of proposals for research and development and manufacturing in the UK that have moved a long way from where they were a week ago," Willetts said. “We are pressing Pfizer in a very hard-nosed way.”

    Willetts and the rest of the Cameron government—a coalition of Cameron’s Conservative Party and the Liberal Democratic Party—have rejected calls from the opposition Labour party to scuttle Pfizer’s courtship of AstraZeneca, saying a merger decision is up to the two companies and their shareholders.

    Labour has denounced Pfizer’s desire to reduce its tax burden by buying AstraZeneca. Pfizer would be taxed at 21% on earnings in the U.K., compared with the current 38% it faces in the U.S. Also, the U.K.is lowering taxes on profits from U.K.-held patents on new products, to 10% by 2017—an incentive called the “patent box.”

    "Do we really want a jewel in the crown of British industry, our second biggest pharmaceutical firm, to basically be seen as an instrument in some tax-planning game?" Shadow business secretary Chuka Umunna said on BBC Radio 4’s Today program.

    Another opposition voice calling for a government halt to a Pfizer-AstraZeneca deal is British billionaire supermarket magnate Lord David Sainsbury of Turville, who was minister of science in the previous U.K. Labor government. He has publicly called Pfizer’s promises meaningless since the company in 2011 shut down the Sandwich R&D site in Kent.

    Sainsbury told the Financial Times newspaper that such an acquisition would be a “devastating blow to our profile in the pharmaceutical area, which I think is going to be critical in the next 30 years.”

    News of Pfizer's dialogue with and commitments to U.K. officials surfaced as Pfizer tried again today to buy AstraZeneca, only to be rebuffed again by AZ's board.

    This time, Pfizer offered $5 billion more than its first $101 billion offer, which rocked the biopharma world when it became public two weeks ago, based on a price of £50 ($84.47) a share, up 7% from the earlier bid. Under the revised offer, Pfizer would pay a slightly larger portion of the deal price in cash, 32% vs. the original 30%, while AstraZeneca shareholders would receive £15.98 in cash and 1.845 shares in the combined company for each current AZ share.

    No sale, AstraZeneca’s board declared in a statement from Chairman Leif Johansson: “The large proportion of the consideration payable in Pfizer shares and the tax-driven inversion structure remain unchanged. Accordingly, the board has rejected the Proposal.”

    "We are showing strong momentum as an independent company, in particular with our exciting, rapidly progressing pipeline, which the board believes will deliver significant value for shareholders," Johansson added. "Pfizer's proposal would dramatically dilute AstraZeneca shareholders' exposure to our unique pipeline and would create risks around its delivery. As such, the board has no hesitation in rejecting the proposal."


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