Pfizer/AstraZeneca: prescription for failure
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Version 0 of 1. Bagehot divided the English constitution into two parts, the "dignified" elements such as the crown that need to be seen to be there, and the "efficient" centres of power which actually get things done. The question raised by Pfizer's disturbing move to acquire AstraZeneca is whether there is any "efficient" British governance at all in matters of industrial policy. MPs put all the obvious questions to Pfizer's chief executive, Ian Read, yesterday – about jobs, R&D and how much tax the whole manoeuvre would save. They received sketchy answers and reassurances falling well short of guarantees. Later, the same committee heard from Vince Cable, the business secretary, on a fiscally motivated takeover, about which he clearly has misgivings. He took the threat to employment and science "extremely seriously", he said. But when it came to the crunch – whether he was ultimately willing to halt the deal – he muttered meekly that it was "tricky". The case against a Pfizer takeover is easy to make: the American giant is no careful owner. It's a firm that, in the industry parlance, "buys in growth". It does so by snapping up rivals, adopting their new drugs, while slashing payrolls and research budgets. That's the US firm's record in three major acquisitions over 14 years. British scientists who have seen the fallout at Pennsylvania's Wyeth (bought in 2009) are among the most vociferous in arguing against AstraZeneca going the same way. And if AstraZeneca goes, runs the thought, in a few years GSK could be the next target. Then there is the bigger industrial picture. The pharmaceutical sector is one in which a yawning gap separates laboratory research on the one hand and profitable products on the other. The wonder material graphene – a lightweight conductor 200 times stronger than steel – was discovered by scientists in Manchester, and yet the thousand-plus registered patents harnessing it in China, America and South Korea are matched by only a few dozen in Britain. Discoveries will grow into marketable designs only if nurtured by an ecology, which includes not only universities but very often state subsidies too, and supply chains with mutually reinforcing links. Sympathetic local management that grasps how these pieces fit together is a major help here too. Mr Cable is operating with powers drafted at a time when, away from the political fringe, there was no challenge to the dogma that financial markets could be left to settle company ownership for the common good. New Labour rightly distilled the lesson that there can be advantages to being open to international investment – think of Toyota's expanding Derbyshire plant – but wrongly leapt to the conclusion that the state's only duty in policing takeovers was to safeguard competition. As Kraft gobbled up Cadbury, mouthing worthless promises about jobs on the way, there was a belated recognition that citizens could sometimes reasonably expect the state to take a view. Promise-breaking corporations are supposed to be deterred by the threat of a "cold shoulder", a bar on City institutions doing business with buyers who break their word. Purchasers can now also be asked to give binding undertakings, theoretically enforceable through the courts. But until that possibility has actually been put to the test, the reasonable fear will be that loose language about best endeavours and unforeseen circumstances will give corporate lawyers plenty of scope to get their clients off the hook. While the first Conservative instinct was simply to welcome Pfizer, Ed Miliband deserves some credit for his insistence that Britain could do better, even though the intervention exposed how sketchy Labour's industrial thinking remains. The more immediate challenge, however, lies with Mr Cable. He hints that he believes in doing something, but suggests that giving details would weaken his hand. With public opinion and the opposition against Pfizer, he should come out fighting – and defy the prime minister to follow his lead. Anything less and the Liberal Democrats will be left looking neither efficient nor dignified. |