Issue Date: May 5, 2014 | Web Date: May 2, 2014
Pfizer Pursues AstraZeneca
Despite two rejections, Pfizer is trying to persuade AstraZeneca to enter talks about a merger. With the clock ticking and negotiations at a standstill, it’s unclear whether Pfizer will switch from persuasion to a hostile takeover as it continues to press its case.
The U.S. firm first approached U.K.-based AstraZeneca about a combination back in November 2013. At a subsequent meeting in January, Pfizer made a preliminary $100 billion offer of 70% stock and 30% cash, which AstraZeneca quickly rejected.
However, “in light of recent market developments,” Pfizer approached AstraZeneca again in late April to try to restart discussions. But AstraZeneca declined, saying it saw no “specific and attractive proposal” from Pfizer.
Pfizer CEO Ian Read argues that a merger would strengthen the combined firm’s “innovative core” as well as its product portfolio, particularly in oncology, inflammation, and cardiovascular health. The deal also proposes a new U.K.-incorporated holding company with management in both countries, head offices in New York City, and a listing on the New York Stock Exchange.
“It would have been very detrimental to the deal to bring AstraZeneca profits, which are taxed differently from the U.S., into the U.S. tax jurisdiction, which is why we opted for a domicile in the U.K.,” Read explained to the media in a conference call.
It’s not clear how the U.S. government would view such an “inversion,” or switching of potentially all of Pfizer’s tax liability to a lower U.K. rate. Noting that other U.S. companies have similarly moved offshore for tax reasons, ISI Group analyst Mark Schoenebaum wondered in his firm’s own conference call whether Pfizer’s move would be “the inversion to end all inversions.”
Read has responded by saying, “I don’t believe it should be any concern to the U.S. government that we’re becoming a stronger company and more competitive on a global scale.”
He also pointed to operational and financial synergies that would benefit a combined company. Schoenebaum suggested that Pfizer might trim at least 35% of expenses at AstraZeneca.
Pfizer contends that a deal with AstraZeneca is consistent with its long-standing strategy to split into three parts—innovative pharmaceuticals; generic drugs; and vaccines, oncology, and consumer health care—by strengthening the businesses that would be split off. However, the timing of any such move, if it happens, might change.
“The clock is ticking,” according to ISI merger expert Michael J. Craig, because U.K. takeover law gives Pfizer until May 26 to either make a firm offer or confirm that it will not. ISI and other analysts believe that Pfizer will have to offer at least $110 billion to get a deal.
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