Pfizer to walk away from £70bn AstraZeneca deal as time runs out

http://www.theguardian.com/business/2014/may/25/pfizer-astrazeneca-deal-deadline

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Pfizer's attempt to take over Britain's second-largest drugmaker AstraZeneca in a deal worth nearly £70bn is set to fizzle out on Monday when a "put up or shut up" deadline expires.

The New York-based Viagra maker is expected to formally pull out as the clock ticks down to the 5pm BST deadline for the firm to make a formal offer or walk away for six months.

An impasse has arisen because Pfizer cannot raise its informal "final" proposal of £55 a share made a week ago, and the board of AstraZeneca, which swiftly rejected its fourth cash-and-shares offer as too low, is unlikely to embark on an embarrassing U-turn, despite pressure from some shareholders. AstraZeneca's shares closed at £43.28 on Friday. A deal would create the world's largest pharmaceutical company.

Financial markets are closed in the UK and US on Monday for a public holiday. The bigger question is what will happen in the months ahead.

Attention will shift to a key industry conference on cancer in Chicago starting on Friday, where the AstraZeneca boss, Pascal Soriot, flanked by his top scientistsm will present clinical data on the company's portfolio of new cancer drugs.

Among the highlights will be data on two new lung cancer treatments, AZD9291 and MEDI4736, which use the body's immune system to fight tumours. The latter, which has been fast-tracked into late-stage clinical trials, could help "redefine the cancer treatment landscape", according to AstraZeneca's chief medical officer, Briggs Morrison.

While AstraZeneca believes the drug could be a £3.9bn moneyspinner at its peak, the firm is in a race against similar treatments from rivals Bristol-Myers Squibb, Roche, Novartis and Merck.

The success of the cancer drugs and other new treatments is crucial to AstraZeneca's new forecast of a 75% jump in annual revenues to $45bn by 2023, which has formed a key plank of its defence strategy. Several City analysts have questioned whether this can be achieved.

Not only is Soriot, who has been in the job for 18 months, under huge pressure to deliver on the drug pipeline, but he also faces demands from major investors led by BlackRock to hold fresh talks with Pfizer in late August. Under UK takeover roles, both companies can resume discussions after a three-month cooling-off period if AstraZeneca initiates them. BlackRock, the world's largest asset management group with $4trn under management, is AstraZeneca's largest shareholder with an 8% holding, and Pfizer's second-biggest investor. It backed AstraZeneca's rejection of last week's offer but wants the company to resurrect talks as soon as possible.

Even though AstraZeneca's directors have serious concerns about the shape of the combined company, which is likely to involve AstraZeneca's breakup, and the tax structure (Pfizer wants to redomicile to Britain to cut its tax bill), the chairman, Leif Johansson, said last Monday the board would consider a bid of £58.85 a share. Pfizer's move on AstraZeneca has sparked a huge political storm in Britain over the impact on British science.

Pfizer's approach has split AstraZeneca shareholders into several camps, with some voicing publicly or privately their disappointment that AstraZeneca did not engage more with Pfizer.

Several investors thought the management should have accepted Pfizer's latest offer, while others such as BlockRock are holding out for more money. The rebel camp includes Axa Investment Managers, the UK arm of the French insurance group, Schroders and Legal & General, and speaks for 16% of the shares. On the other side, Sweden's Investor AB, Fidlity, Threedneedle, M&G and the well-known fund manager Neil Woodford have publicly backed AstraZeneca's rejection of the bid. Those loyal to the management control more than 10% of the shares.

With Pfizer working behind the scenes to spur on disgruntled AstraZeneca shareholders, there might be enough pressure to get the company back to the negotiating table in coming months. Bookmaker Ladbrokes is offering odds of 3/1 for the takeover to be completed before Monday, and 5/4 for a deal to happen in a few months' time. One big shareholder put the chances of a deal eventually being struck at one in four.

AstraZeneca has also faced calls from some investors to link bonuses for top management to Pfizer's offer price and the new sales target.