Pfizer raises bid for AstraZeneca to $118.8 bn, says latest offer is final

19 May 2014

US drug giant Pfizer Inc yesterday raised its cash and stock bid for Britain's AstraZeneca Plc by 15 per cent to $118.8 billion (£70 billion) and said that the revised offer will be final. 

Under the new offer made up of 45 per cent cash and 55 per cent in stock, AstraZeneca stockholders would receive $41.65 in cash and 1.747 shares of the combined company, taking the total value to $92.48 (£55.00) a share.

Pfizer, based in New York, has also raised the ratio of the cash component in its offer to 45 per cent from 33 per cent, a move designed to woo institutional investors.

The revised bid is 10 per cent more than its 2 May offer and is 45 per cent above AstraZeneca's closing price on 3 January, before Pfizer made its initial offer.

Post closing, Pfizer shareholders would own 74 per cent of the combined company, while AstraZeneca shareholders will own the remaining 26 per cent.

London-based AstraZeneca had rejected Pfizer's 2 May offer of £50 a share (See: AstraZeneca snubs Pfizer's ''opportunistic'' bid) and a 16 May revised offer of £53.50 a share, saying that the offers substantially undervalued the company. 

AstraZeneca, whose shares closed last week at £48.23, is yet to comment on Pfizer's latest offer.

Pfizer, which has been courting AstraZeneca since the past six months, said the new proposal is its final offer, and also added that it will not make its bid hostile and take it directly to AstraZeneca's shareholders.

''We have tried repeatedly to engage in a constructive process with AstraZeneca,'' said, Ian Read, CEO of Pfizer in a statement. ''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. We remain ready to engage in a meaningful dialogue, but time for constructive engagement is running out.''

Pfizer, whose drugs include Viagra and Lipitor, has until 26 May to table a formal offer as required under the deadline imposed by the UK Takeover Panel, or walk away for six months.

Investors like Investor AB, the Swedish investment company, and the former Invesco fund manager Neil Woodford, had earlier backed AstraZeneca in rejecting Pfizer's initial bid of £50 a share, and analysts say that they are unlikely to change their stance to the sweetened offer.

Pfizer first contacted AstraZeneca on 25 November 2013, when Pfizer chairman and CEO Ian Read initially proposed that the two companies discuss a combination.

Leif Johansson, chairman of AstraZeneca, had said he was confident in AstraZeneca's prospects as an independent business, but nevertheless, agreed to an exploratory meeting and subsequently met with Pfizer on 5 January 2014 in New York.

The deal, which would be the largest-ever takeover of a British business by an overseas company, has come under increasing political opposition, especially after British lawmakers were widely criticized for keeping aloof when Cadbury was acquired in 2010 by Kraft Foods in one of the most acrimonious takeovers in UK corporate history. (See: Cadbury finally falls to Kraft's sweetened bid)

Business secretary Vince Cable had last week said that the bid by Pfizer Inc for UK's second-biggest drugmaker raised questions of ''overriding national interest'', after the opposition Labour Party stepped up its campaign against the proposed takeover.

Cable's statement came after Labour leader Ed Miliband accused prime minister David Cameron of promoting Pfizer's bid. Cable told reporters that reviewing rules on intervening in takeovers on public interest grounds was an option that the government was looking at. (See: Cable admits Pfizer-AstaraZeneca deal involves 'national interest' issues)

Pfizer has proposed that the merged company headquarters would remain in New York, but domiciled in the UK for tax purposes.

Britain has recently reduced its corporate taxes to 21 per cent from 26 per cent in 2011 and will further reduce it to 20 per cent in April 2015. It also offers tax reliefs for companies engaged in scientific research and development.

AstraZeneca, which has a sizable R&D structure in the UK, can claim up 130 per cent of tax reliefs on its research budgets. It can reduce the profit payable on corporate tax by £130 on every £100 it spends.

Although AstraZeneca has said that Pfizer's offer significantly undervalues the company and its portfolio of experimental drugs, UK lawmakers are more concerned about potential job cuts, plant closures, and the attrition of R&D in the country.

Pfizer's assurances on limited job losses has not cut ice with the British government  since Pfizer has a history of eliminating several thousands of jobs globally post acquisitions.

At nearly $120 billion, the deal would be Pfizer's biggest acquisition after its 2000 purchase of Warner-Lambert Co for $90 billion. The Pfizer - Warner-Lambert merger is also the industry's biggest deal to date.

Apart from Warner-Lambert, Pfizer's other big-ticket acquisitions are the 2009 purchase of Wyeth for $64.2 billion (Pfizer-Wyeth create $68-billion blockbuster deal) and the 2002 acquisition of Sweden's Pharmacia for $64.2 billion.

AstraZeneca, which has a market value of around $80 billion, is currently battling with declining pipelines, patent expirations of some of its best selling drugs and. along with industry peers, facing a reduction on government healthcare spending.

Formed through the £40-billion merger of equals in 1999, AstraZeneca's blockbuster drugs such as Nexium and Crestor, a treatment for high cholesterol, will lose patent protection in the next few years.

Earnings at AstraZeneca fell 6 per cent in the fourth quarter of 2013, and the drugmaker expects them to fall further in 2014 as generics start competing with Nexium, its popular heartburn and ulcer drug in the US market in May.

AstraZeneca, however, has experimental cancer drugs in the pipeline, which could be of interest to Pfizer.

AstraZeneca operates in over 100 countries and focuses on the discovery, development and commercialisation of prescription medicines, primarily for the treatment of cardiovascular, metabolic, respiratory, inflammation, autoimmune, oncology, infection and neuroscience diseases.

Pfizer, whose drugs include Advil, Lyrica, Diflucan, Viagra and others, too has faced similar patent losses, particularly the blockbuster anti-cholesterol drug Lipitor.

The company, which was founded by cousins Charles Pfizer and Charles Erhart in 1849, has grown through strategic mergers and today focuses on developing treatments in immunology & inflammation, CV & metabolic diseases, oncology, neuroscience & pain and rare diseases.