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UPDATE - AstraZeneca rebuffs Pfizer

Published: 21:53 28 Apr 2014 AEST

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Anglo-Swedish drugs giant AstraZeneca (LON:AZN) is spurning the advances of Pfizer after the US drugs giant made a £59bn takeover offer.

The US drugs giant confirmed reports that it approached its much smaller UK rival in January about an agreed takeover, but talks were broken off by Astra on 14 January.  The indicated terms were £13.98 in cash plus 1.758 Pfizer shares per AstraZeneca share which, at the time, valued each Astra share at around £46.61.

After news of the bid talks broke over Easter, Pfizer contacted AstraZeneca on 26 April 2014 seeking to renew discussions but was given the cold shoulder again by Astra’s top brass.

Astra’s statement says that talks between Ian Read, who is both chairman and chief executive officer of Pfizer, and Astra’s chairman, Leif Johansson, did take place on 26 April, but Pfizer did not make a specific proposal to acquire the European pharmaceuticals champion. Nevertheless, Pfizer wanted to put out an announcement stating that merger talks are in progress, whereas Astra did not.

Pfizer is now considering its options, including a cash plus shares offer for Astra that would be at “significant premium” to the price of Astra’s shares as on 17 April, the last trading day before Easter.

Astra's shares have advanced to £47.81, barely more than a quid above Pfizer's sighting shot, and are up 17% on the day and about one-quarter higher than Astra’s closing share price on 17 April.

Pfizer said it is confident a combination is capable of being consummated, with the two companies controlled by a new UK-incorporated holding company.

Astra said the proposal mooted in January involved a new US listed and headquartered holding company, and that it is  also concerned about the execution risks associated with the proposed inversion structure, as Pfizer would redomicile to the UK for tax purposes.

“As a global corporation, Pfizer would expect the combined company to have management in both the United States and the United Kingdom, and to maintain head offices in New York and list its shares on the New York Stock Exchange,” Pfizer’s statement said.

Pfizer said one of the conditions of the bid would be unanimous recommendation of acceptance of it by the Astra board. That is looking a little unlikely, given the frosty nation of Astra’s response; Astra’s directors believe Pfizer's opening offer significantly undervalues the company and its prospects.

By going public with the idea of a merger, however, Pfizer will put pressure on Astra’s directors from parties looking for a short-term gain, and right now Astra directors do not have a lot of goodwill to call on in the market, what with 38% of the votes on the executive remuneration package cast at the recent annual general meeting being against acceptance.

Pfizer boss Read is clearly keen on the takeover, however. “The combination of Pfizer and AstraZeneca could further enhance the ability to create value for shareholders of both companies and bring an expanded portfolio of important treatments to patients. A potential combination with AstraZeneca aligns with Pfizer's current structure and fully supports its existing strategy to build world-class businesses,” claimed Read.

“The combination would complement our two innovative businesses and our Global Established Pharmaceutical business, allowing us to maintain the flexibility for the potential future separation of our businesses whilst at the same time broadening our pipeline breadth and potential new product launches over coming years.

“We believe that a transaction would further strengthen our ability to generate strong and consistent cash flow, targeted for both investment in our business and return to shareholders, while at the same time offering an efficient operating structure and the anticipated realisation of attractive synergies,” he added.

Astra, on the other hand, noted its share price has performed strongly and consistently since late last year as the company “has continued to deliver on its clearly stated strategy, in particular the strengthening of its diabetes franchise and the progression of its oncology pipeline”.

AstraZeneca has demonstrated strong momentum across all elements of this strategy, through accelerated development of the pipeline and business development opportunities and implementation of organisational changes with significant anticipated financial benefits. This was evidenced most recently in AstraZeneca's Q1 results which highlighted the significant progress made towards achieving scientific leadership in core therapeutic areas,” Astra’s rebuttal said.

Whether the Astra board truly thinks it is better off flying solo or is just talking up the take-out price remains to be seen; the experience of Cadbury, which failed to keep out of the clutches of cheese-in-a-can maker Kraft when the hedge funds voted to take the money rather than open the box, suggests resistance may be futile.

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