Pfizer raises stakes with final AstraZeneca takeover approach

http://www.theguardian.com/business/2014/may/18/pfizer-lay-out-final-astrazeneca-takeover-proposal

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US drugsmaker Pfizer has raised the stakes in its much-contested quest to buy British rival AstraZeneca by lodging a fresh £69bn takeover approach.

The new proposal of £55 a share piles pressure on AstraZeneca's board to enter negotiations to create the world's largest pharmaceutical company in the face of considerable opposition from politicians and Britain's scientific community.

In a bid to force AstraZeneca to accept what would be the biggest foreign takeover of a British company, Pfizer said the improved offer is "final and cannot be increased". It added that it will not make a hostile offer directly to AstraZeneca shareholders and will only proceed with an offer with the recommendation of the AstraZeneca board.

Pfizer boss Ian Read, who addressed political concerns over the mooted takeover in two parliamentary appearances last week, said: "We believe our proposal is compelling for AstraZeneca's shareholders and that a Pfizer-AstraZeneca combination is in the best interests of all stakeholders. We are excited at the opportunity to create a scientific powerhouse, delivering great benefits to patients and science in the UK and across the globe. We stand by our unprecedented commitments to the UK government."

In an attempt to persuade AstraZeneca investors to force the board to negotiate, he flagged the company's apparently implacable opposition to a deal. He said he did not believe the "AstraZeneca board is currently prepared to recommend a deal at a reasonable price. We remain ready to engage in a meaningful dialogue but time for constructive engagement is running out."

The New York-based Viagra maker raised its cash and shares proposal by 15% to £55 a share, from £50 a share at the beginning of the month. It raised the cash element of the approach – viewed as a significant factor in whether the deal will go through – to 45% from 33%, with the rest payable in Pfizer shares. AstraZeneca's shares ended last week trading at £48.23.

Pfizer has until 5pm 26 May to lodge a formal offer and meet a "put up or shut up" deadline imposed by the Takeover Panel, or walk away for six months.

AstraZeneca chief executive Pascal Soriot told the Guardian last week that AstraZeneca's reputation could be damaged by Pfizer's tax avoidance plans, which will see Pfizer base the company in the UK in order to keep its cash pile from the US taxman. He also raised concerns about the proposed break-up of the business, which would see AstraZeneca's assets split between three new Pfizer divisions.

In an emotional appeal at parliamentary hearings last week, Soriot said a deal could endanger lives by interrupting work on new cancer 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?" But he also acknowledged his duty to shareholders, saying the board would have to consider a credible bid.

Pfizer wants to move its tax domicile to Britain to cut its tax bill, which has sparked controversy in Britain and among US lawmakers. The company has also worried British politicians and trade unions with the admission that it would cut global research and development spending and jobs.

AstraZeneca has spent the last two weeks talking up its drug pipeline, in particular a new generation of cancer treatments that target the body's immune system.

A tour of AstraZeneca shareholders by the Pfizer chief executive last week left the impression among City institutions that the US group is strongly committed to securing a takeover, a view confirmed by the renewed approach on Sunday night.

Two of AstraZeneca's top ten shareholders, Sweden's Investor AB with a 4.1% stake and Aberdeen Asset Management with a 2.4% holding, had publicly backed the board's rejection of Pfizer's advances.

The influential fund manager Neil Woodford, who controls a £350m stake in AstraZeneca on behalf of investment firm St James's Place, has also backed the firm's fight for independence, prior to the sweetened offer. But other big investors want it to start negotiations. Pfizer's Read is thought to have met a dozen institutional shareholders in AstraZeneca last week, including two hedge funds.

Pfizer is under pressure from the UK government to extend from five years to 10 years its commitment to keep 20% of the combined research and development workforce in Britain.

Meanwhile, British civil servants have begun exploratory talks with the EU over amending the terms of the public interest test to include continued investment in research and design as grounds on which the government could threaten to block the takeover.

Vince Cable's business department is also interested in using the test to obtain stronger commitments from Pfizer on jobs and R&D. The Labour party has also said it would subject any deal to an amended public interest test if it won the general election. Any takeover would be vetted on competition grounds by the European commission and regulatory authorities in the US and China, which competition lawyers say could take more than a year.

AstraZeneca's chairman, Leif Johansson, has pointed to regulatory uncertainties, particularly in China. "We identified a big execution risk," he told the Sunday Times. "It could be over a year or more before the transaction happens."

Sir Tom McKillop, who ran AstraZeneca from 1999 until 2006 and is a former president of the Science Council, became the latest senior industry figure to voice serious concerns about the takeover. Writing in the Sunday Times, he urged the firm's directors and shareholders to "protect the 'soul' of this great business". McKillop oversaw the 1999 merger between Sweden's Astra and Britain's Zeneca, which he described as a "genuine merger of equals" that "allowed increased investment in R&D, not the reduction that Pfizer proposes".

McKillop said Pfizer and AstraZeneca, by contrast, have "different visions and conflicting cultures; it is unlikely that they will make a good fit together". He concluded by telling AstraZeneca's directors that they must remember that their fiduciary duties extend not just to shareholders, but to the wider society – "including the millions of patients hoping for new treatments that can only come from a commitment to research."

The Swedish trade unions Unionen, Akademikerföreningen and IF Metall, representing workers at AstraZenca's sites in Sweden, echoed concerns voiced by British unions Unite and GMB. They said: "Pfizer's historical track record on mergers and acquisitions is quite scary.

Takeover after takeover has been followed by redundancies and closures all over the world."

It was also reported this weekend that the US drugstore chain Walgreens is reportedly preparing to take full control of Britain's biggest chemist, Alliance Boots, in a £10.5bn deal. It is the latest attempt by a US company to redomicile to Britain to save billions in tax. Walgreens already owns 45% of Boots and has an option to buy the remaining 55% from next February with a six-month window.