Pfizer admits takeover of AstraZeneca would lead to cuts in UK jobs and R&D

http://www.theguardian.com/business/2014/may/13/pfizer-astrazeneca-uk-job-cuts-mps-hostile

Version 0 of 1.

US drug firm Pfizer has admitted that its proposed £63bn takeover of UK rival AstraZeneca would lead to job cuts and a big reduction in the combined companies' research and development spending.

Pfizer's chief executive, Ian Read, who was subjected to a sustained questioning by MPs on Tuesday, admitted that despite his repeated assurances that the takeover would be "win-win" for the UK "there will be some job cuts".

"I'm not sitting here saying that we can become more efficient without some reduction in jobs," he told MPs on the business select committee. "We'll be more efficient by some reduction in jobs. What I can't tell you is how much or how many or where."

Read repeatedly refused to promise to protect the jobs of the combined companies' current British scientists despite publicly promising the deal was "a win-win for society, a win-win for shareholders, and a win-win for stakeholders".

AstraZeneca has repeatedly rejected Pfizer's offers as significantly undervaluing the company and the UK firm's chief executive, Pascal Soriot, who also appeared before MPs on Tuesday, warned the proposed deal risked disrupting or delaying the development of life-saving drugs.

"What will we tell the person whose father died from lung cancer because one of our medicines was delayed – and essentially was delayed because in the meantime our two companies were involved in saving tax and saving costs?" Soriot told the select committee.

Under hostile questioning at the earlier session, Read only commit to basing one-fifth of the company's global R&D staff in the UK, and only for the next five years.

"Our commitment is to base 20% of our global research and development in the UK," he said. "That is a firmer commitment and a better deal than anything else on offer."

But he told MPs that overall R&D spending after a takeover would decrease and he could not make any promises on the number of R&D jobs the company would maintain.

"Globally we would probably reduce the combined budget," he said. "I haven't said in which countries and where we would reduce that.

"I can't tell you today how many people we are going to have in R&D. Once we get in we will know how many people we will need.

"I think the commitment of 20% of a global company's R&D in the UK is an unprecedented commitment.

"Once the deal is completed, we will look at the global spend and decide where is the best place for science, and the UK has a great science infrastructure."

Despite the expected cut backs, Read said the proposed deal – which would be the biggest by an foreign takeover of a British company – would "strengthen the size of the UK science community".

The chairman of the business committee, Labour MP Adrian Bailey, asked why Britons should trust Pfizer to maintain jobs and research spending given its "track record of basically slashing your workforce".

"You've slashed the workforce by over 60,000 and nearly halved the amount spent on R&D," he said referring to other recent Pfizer takeovers.

Bailey put it to Read that Pfizer had been described as a "praying mantis" and a "shark that needs feeding", adding: "What can you say to this committee to convince us that this is a leopard that has changed its spots?"

William Bain, another member of the committee, asked Read why should the committee believe Pfizer's pledge to maintain research in the UK.

Read, who has worked at the US drugmaker for 35 years, said he was a "man of my word and Pfizer is a company of its word". He gave MPs a personal promise to maintain 20% of R&D jobs in the UK for five years alongside the commitment that would be legally binding under the takeover code.

But he refused to make a longer term pledge despite warnings from leading scientists that development of new drugs can take decades.

Paul Nurse, president of the Royal Society, said Pfizer must make a 10-year commitment to the UK, while unions representing AstraZeneca's 6,700 UK staff said the five-year pledge was "paper thin" and "remarkably short-term".

Allan Black, national officer of the GMB union, said: "AstraZeneca's time frame is 25 years. Generally speaking you have to allow for up to 25 years research and development to bring drugs to the marketplace. Frankly a commitment of 10 years is very, very thin indeed."

Read said Britain should welcome the opportunity to have the world's largest pharmaceutical company domiciled in the UK for tax purposes and said it would be very beneficial to the Exchequer.

Pfizer admitted that moving to the UK would also give it "substantial tax benefits" at the expense of US taxpayers. The company will save millions by spending its £40bn cash pile it has built up overseas on buying AstraZeneca rather than bringing the money back to America, where it would be taxed.

The tax plans have been attacked by prominent US senators Carl Levin and Roy Wyden, who are working to urgently to close the loophole.

Pfizer said the UK's 20% corporate tax rate from next year compared with 40% in the US was "very attractive".

Read praised the UK government's "very clever" tax breaks strategy and said it was crucial to Pfizer's decision to make an offer for AstraZeneca. "We would change the price we are offering if we didn't have the advantage of the tax," he said.

He highlighted the UK's "patent box" tax - introduced by George Osborne - which allows companies to pay just 10% tax on profits derived from UK research.

Soriot warned that Pfizer's proposed tax inversion could generate substantial controversy and "potentially impact the reputation of our company". But it emerged later in the hearing that AstraZeneca paid no corporate taxes last year because its operations in the UK made a loss.

On Monday Pfizer sidestepped AstraZeneca's board and made a direct appeal to shareholders that it should be allowed to buy the British firm.

In a statement to the City, Pfizer said it "remains disappointed at the lack of engagement by the AstraZeneca board" and warned that the UK firm would face "challenges" if it remained independent.

AstraZeneca dismissed Pfizer as "opportunistic", with Soriot telling MPs the UK firm was better off alone. "We have the scale, we have the people, we have the talent, we have the products, we are confident we can succeed," he said.

But after the hearing Soriot indicated that AstraZeneca's board would be open to a bid if Pfizer substantially increased its offer.

Rumours in the City suggest that Pfizer is planning to slightly increase its bid above the current £50-a-share offer before it considers taking the takeover hostile by making its offer direct to shareholders. A fresh bid is unlikely to take place until after the executives face further questioning by MPs on the science select committee on Wednesday.