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AstraZeneca Rejects Pfizer’s Final Offer

Acquisition: Deal not sweet enough to make British firm bend

by Ann M. Thayer
May 22, 2014 | A version of this story appeared in Volume 92, Issue 21

Credit: AstraZeneca
Leif Johansson, AstraZeneca chairman.
Credit: AstraZeneca

AstraZeneca’s management has rejected Pfizer’s fourth and presumably final takeover offer, this one valued at $119 billion.

Credit: Pfizer
Ian Read, Pfizer chairman and CEO.
Credit: Pfizer

“We have rejected Pfizer’s final proposal because it is inadequate and would present significant risks for shareholders, while also having serious consequences for the company, our employees, and the life sciences sector in the U.K., Sweden, and the U.S.,” AstraZeneca Chairman Leif V. Johansson said. Even if key concerns around a merger had been satisfactorily addressed, he added, AstraZeneca’s board wanted to see an offer of more than $127 billion before it would consider recommending it to shareholders.

The rejection seems to end a takeover saga that has been gripping the drug industry for weeks. In a letter to AstraZeneca, Pfizer indicated that its proposal “is final and cannot be increased.” It also said it will not make a hostile offer directly to AstraZeneca shareholders.

Owing to the vagaries of British takeover law, AstraZeneca has largely shut down the process, at least for six months, unless its board has a last-minute change of mind. And that would take significant shareholder pressure, because the board appears “inflexible,” Leerink stock analyst Seamus Fernandez pointed out in a report. That said, a number of large investors have been “disappointed by the company’s summary rejection,” he added.

The $119 billion bid represented a 53% premium to AstraZeneca’s stock price in early January. The British firm’s share price quickly fell about 11% last week on news that the offer was turned down.

Pfizer began pursuing AstraZeneca in January with a $100 billion bid. Since the end of April, it ramped up its efforts through higher bids, appearances before British parliamentary committees, and appeals to lawmakers and shareholders. Pfizer CEO Ian C. Read has been on a campaign to provide assurances that the merger was good for science and would not negatively impact AstraZeneca’s R&D operations.

However, AstraZeneca was eager to point out that a main driver of a merger would have been to move Pfizer’s domicile from the U.S. to the U.K. and benefit from reduced tax rates. “Pfizer’s approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimization,” Johansson said. “Pfizer has failed to make a compelling strategic, business, or value case.”

As Pfizer pursued AstraZeneca, U.S. lawmakers started to respond to the potential “inversion,” or switching of tax headquarters. On May 20, Sen. Carl Levin (D-Mich.) and 13 other Democratic senators introduced a bill to prevent companies from moving offshore, at least on paper, while maintaining operations in the U.S. Companion legislation is expected in the House of Representatives.

“The Pfizer-AstraZeneca deal is just the latest example of abusive inversion deals,” Levin said when introducing the bill. If Pfizer’s inversion succeeded, he said, it would have cost the U.S. about $1 billion in annual tax revenue.



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