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U.S. drugmaker Pfizer has increased its proposed price for U.K. drugmaker AstraZeneca by 15 percent to $118.8 billion in cash and stock. Pfizer’s latest proposal, made Sunday evening, is its fourth and final one. It hopes it will provide a clear basis to begin discussions with AstraZeneca’s board and extend the period for making a firm offer before a deadline on May 26. Pfizer said it would not proceed with a hostile takeover if AstraZeneca rejects its proposal and will only proceed with the recommendation of the U.K. drugmaker’s board.
Pfizer has been courting AstraZeneca since January but its proposals have been repeatedly rejected. The U.S. drugmaker’s previous offer, made on May 2, valued AstraZeneca at $106 billion and was rejected by its board as inadequate and undervaluing the company. The new offer values the U.K. biopharma at $92.53 (£55) per share—a price many industry observers have said may move its board to accept the deal.
Pfizer also raised the cash portion of the deal to 45 percent of the total consideration, from the previous proposal of 33 percent. The new offer would give AstraZeneca’s shareholders 1.747 shares of the new company and 2.476 pence in cash for each AstraZeneca share.
Based on Pfizer’s closing price on May 16 and the current exchange rate, the proposal represents a premium of approximately 45 percent to the unaffected closing price of AstraZeneca on April 17 before market speculation of Pfizer’s interest became public, and 53 percent to the closing price of AstraZeneca at the beginning of January when Pfizer made its first proposal.
Pfizer’s proposal came shortly after it sent a letter to AstraZeneca with an improved proposal that valued the company at £53.50 a share, which its board said substantially undervalued the company. During discussions on May 18, ahead of Pfizer’s final proposal, AstraZeneca made it clear it was not prepared to accept a price close to £53.50 a share.
Pfizer Chairman and CEO Ian Read isn’t convinced it can engage AstraZeneca in merger discussions. “We have tried repeatedly to engage in a constructive process with AstraZeneca to explore a combination of our two companies. Following a conversation with AstraZeneca earlier today, we do not believe that the AstraZeneca board is currently prepared to recommend a deal at a reasonable price,” says Read. “We remain ready to engage in a meaningful dialogue but time for constructive engagement is running out. We have said from the beginning that we will remain disciplined in the price we are willing to pay and we will not depart from that guiding principle. We believe that our proposal represents compelling and full value for AstraZeneca and that other issues that have been raised by AstraZeneca do not represent material difficulties.”
If the merger goes through, Pfizer shareholders will own approximately 74 percent of the combined company, with AstraZeneca shareholders owning 26 percent.
If the deal goes through, Pfizer stands to reap tax benefits from establishing its headquarters in Britain and shielding its billions of overseas cash from U.S. taxation.
Although many observers were surprised when Pfizer’s intention was first made public as megamergers tend to stifle R&D, Pfizer may need AstraZeneca’s attractive oncology portfolio ahead of its plan to break itself up.
Pfizer’s attempt to buy Britain’s second largest pharmaceutical has caused considerable concern in the United Kingdom over the potential loss of jobs and reduction in R&D in the country. But Read has publicly said Pfizer is committed to the UK and its life sciences agenda.
“A combined company would bring together powerful and world leading research expertise in which the world class academic research resources in the “golden triangle” of Oxford, Cambridge and London would represent a vital component, along with the positive environment for inward investment that the UK Government has created,” Read wrote in a letter to U.K. Prime Minister David Cameron.
Read said that if the merger goes through, Pfizer would establish its corporate and tax headquarters in England, commit to at least 20 percent of its total R&D workforce in the country, establish its European headquarters in the UK, and invite at least two AstraZeneca board members to join the board of the new company.
Editor's Note: On Monday, May 19 the Board of AstraZeneca rejected Pfizer's final proposal as inadequate and noted that they condisdered Pfizer's approach to "have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimization." They said "Pfizer failed to make a compelling strategic, business or value case" for the acquisition.
May 18, 2014
http://www.burrillreport.com/article-pfizer_ups_offer_for_astrazeneca_to_119b.html
