Pfizer defends AstraZeneca takeover

Pfizer is struggling to convince everyone that its merger with AstraZeneca is a good idea. Some are worried about jobs in the U.K., while others are worried about the role regulators are taking.

The New York Times story by David Gelles had these details about the campaign to convince people the merger is a good idea:

Pfizer on Saturday continued to press its case for a $106 billion takeover of AstraZeneca, the British drug maker, in the face of mounting resistance on both sides of the Atlantic.

In a series of videos posted online, Pfizer’s chief executive, Ian Read, tried to quell growing concern from British politicians about the transaction, and make the case that the deal would benefit shareholders of both companies.

Apparently responding to critics of the deal who say a Pfizer takeover of one of Britain’s biggest companies would destroy jobs in the country, Mr. Read suggested he would complete AstraZeneca’s planned research campus in Cambridge, England, should the deal go through.

Mr. Read pointed to Pfizer’s work in the United States, where it has centralized research operations outside Boston, as an example of what the company would do in England.

“I see great similarities with Cambridge, Mass., where you have this hub of innovation, this hub of young scientists, where you see between Cambridge and Oxford and London huge opportunities in science,” he said. “So the strategy to build a center in Cambridge in fact is in line with our strategy, as we’ve shown by what we’ve done in Massachusetts.”

The Washington Post story by the Associated Press led with the details that lawmakers are being criticized about their role in the merger negotiations:

Britain’s leader sought Sunday to deflect criticism that he’s been working too closely with U.S. drugmaker Pfizer in its proposed $106-billion takeover of the Anglo-Swedish firm AstraZeneca.

With fears growing that British jobs will be lost and the nation’s science base undermined in the potential merger, Prime Minister David Cameron denied in a BBC interview that he was favoring the American company. When asked on The Andrew Marr Show whether he was engaging more closely with Pfizer, Cameron insisted that wasn’t the case.

“Ministers were talking to AstraZeneca before anyone spoke to Pfizer,” he said.

Pfizer has made three offers for AstraZeneca since January — all of which have been rejected. AstraZeneca said Pfizer’s latest offer of $106 billion in cash and stock undervalues the company and that a takeover would disrupt its work on a potentially lucrative pipeline of new drugs.

The proposed deal would be the largest foreign takeover of a British company, and Cameron has faced political pressure from the opposition Labour Party to ensure the deal is in the public interest.

The USA Today story by Kim Hjelmgaard said that deals in the pharmaceutical sector were at an all-time high, indicating that many firms could feel pressure to merge:

Since the start of the year, the value of deal-making maneuvers in the global pharmaceutical sector has hit nearly $240 billion, making 2014 the busiest year ever, according to Thomson Reuters data.

“What the Pfizer bid for AstraZeneca has done is to highlight that the next cycle in the bio-pharmaceutical business is M&A,” says Basil Petrides, an analyst at Beaufort Securities, a London-based wealth management company.

“There are always synergies to be had in terms of minimizing overlap, but the deals we have seen recently are not necessarily all about cost-cutting either,” he says. “Intellectual property rights on drugs only last for a certain amount of years and after that they are opened up to other manufacturers. Pfizer has been circling this deal for a long time. Its pipeline of drugs is slowly eroding and the easiest way to get value for shareholders is to take over companies that have ‘pipe’ and proven technology.”

In addition to Pfizer’s spurned cash and stock bid for AstraZeneca on May 2 — worth a bit less after shares in Britain’s second-largest drugs firm closed down 2.4% Friday — Germany’s Bayer agreed to purchase New Jersey-headquartered Merck’s consumer care business on May 6 for $14.2 billion.

Naomi Kresge wrote for Bloomberg Businessweek that while the companies are talking about drug pipelines, the real reason for the merger might be about taxes:

When Pfizer Inc. (PFE:US) Chief Executive Officer Ian Read faces U.K. lawmakers to justify his proposed takeover of AstraZeneca Plc (AZN), one question will underpin the debate: whether the more than $106 billion offer is really about drugs, or about taxes.

A review of AstraZeneca pipeline assets suggests the latter may be true. AstraZeneca lacks first- and best-in-class experimental drugs in the core cardiovascular, diabetes and cancer sections Pfizer cited as grounds for the offer.

AstraZeneca CEO Pascal Soriot cast the pipeline in a rosy light for investors last week, predicting sales potential of about $23 billion by 2023. That implies a 36 percent chance of success overall, Soriot said, with odds on individual drugs such as a BACE inhibitor for Alzheimer’s as low as 9 percent. That’s slightly better than the chances of winning anything in the lottery in Pfizer’s home state of New York.

Judging by investor reactions to AstraZeneca’s projections and Pfizer’s figures, it’s a case of a measurable benefit — tax — being weighed together with a hypothetical one.

“It doesn’t work financially on most people’s calculations without the tax benefit,” said Mark Clark, a London-based analyst for Deutsche Bank who called AstraZeneca’s estimates “blue sky” in a note to investors last week. “Without a doubt, tax is a major motivation.”

No matter what the motivation, it seems that both companies have a lot of work to do on the public relations front. They need to convince citizens and the regulators that a combination would be in their best interests – often something that can be hard to do.