|
 AstraZeneca's board said the offer undervalued the company
"substantially" and was not an adequate basis on which to engage
with its suitor.
Industry analysts and investors said that raised the possibility
that Pfizer would now take the takeover plan, which would boost its
pipeline of cancer drugs and create significant tax and cost
savings, direct to AstraZeneca shareholders.
The U.S. group would much prefer an agreed deal, since hostile
takeovers typically take longer, require a higher final price and
carry more risks because the bidder cannot access the target's books
to assess its business.
One AstraZeneca investor said Pfizer management had made clear in
meetings this week that it wanted a friendly deal but it was
determined to the see the transaction completed and a hostile bid
was a potential "tool".
While Pfizer has given assurances to the British government on
retaining drug research in Britain, a spokesman for Prime Minister
David Cameron said AstraZeneca's fate would be determined by
shareholders, not the state.
Friday's 50 pounds ($84.47) a share indicative offer followed
AstraZeneca's decision to rebuff an earlier proposal that valued it
at 58.8 billion pounds, or 46.61 pounds per share.
Some investors and analysts had expected that the sweetened offer
would be enough to bring AstraZeneca's board to the negotiating
table, even if it was not accepted, and the swift rejection suggests
Pfizer may now go over the board's head.
"I think it's making it increasingly likely that Pfizer is going to
come back with a hostile bid," said Mick Cooper, analyst at Edison
Investment Research.
Leading investors have met with Pfizer Chief Executive Ian Read this
week in London and some feel that an offer of 50 pounds or above is
certainly worth discussing.
"Given where the shares have come from, this doesn't look
unreasonable," one of AstraZeneca's 10 largest shareholders said of
the latest Pfizer offer.
AstraZeneca shares were trading at around 30 pounds a year ago, but
confidence in the company's cancer drug pipeline has built up
strongly since then.
"We expect Pfizer ultimately to have to sweeten its offer based on
discussions we have had with investors, many citing a price within
the 52-55 pounds range and some above this, and our analysis of the
EPS accretion for Pfizer," said Mark Clark, an analyst at Deutsche
Bank.
Investors had previously said they were looking for at least 50
pounds a share and also wanted more cash in the mix. The new offer
would have given them 32 percent cash and 68 percent shares, little
different from the 30-70 split offered originally.
Many analysts are convinced Pfizer will raise its offer again, not
least because it wants to get the deal done before any possible
change in U.S. tax rules that might prevent it moving its tax base
to Britain.
Pfizer's latest proposal would have seen shareholders receiving, for
each AstraZeneca share, 1.845 shares in the combined company and
15.98 pounds in cash.
Commenting on the offer, AstraZeneca Chairman Leif Johansson said:
"Pfizer's proposal would dramatically dilute AstraZeneca
shareholders' exposure to our unique pipeline and would create risks
around its delivery."
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He also highlighted the fact that the small cash component would
leave investors exposed to the risks faced by Pfizer in executing an
ambitious mega-merger.
POLITICAL STORM
Shares in the British group slipped back 0.2 percent to 48.07 pounds
by 1335 GMT. The stock had already gained ground in late trading on
Thursday on speculation that Pfizer would come back with an improved
offer, including a larger cash element, and there was some
disappointment that the cash component had not increased more.
Pfizer shares fell 0.5 percent in early New York trading.
The takeover plan, which would be the largest acquisition of a
British company by a foreign business, has stirred political
controversy in Britain.
In an attempt to smooth relations with the government, Pfizer CEO
Read wrote to Cameron, promising to complete a substantial new
research center planned by AstraZeneca in Cambridge and retain a
manufacturing plant in Macclesfield.
The Cambridge site, in particular, is viewed as important to the
development of the so-called "golden triangle" of Britain's life
sciences industry, spanning Oxford, Cambridge and London.
Read also said that 20 percent of the enlarged group's research and
development workforce would be in Britain, which a Pfizer spokesman
said would represent a "very substantial" increase in its research
efforts in the country.
"We make these commitments for a minimum of five years, recognizing
our ability, consistent with our fiduciary duties, to adjust these
obligations should circumstances significantly change," Read added
in a letter to Cameron.
Science minister David Willetts said Pfizer had moved a long way in
its commitments to British science and research, but the opposition
Labour party was scathing about the potential deal.
"Pfizer has a very poor record on previous acquisitions. Do we
really want a jewel in the crown of British industry, our second
biggest pharmaceutical firm, to basically be seen as an instrument
of tax planning?" said business spokesman Chuka Umunna.
Pfizer's reputation is under a cloud in Britain following a decision
three years ago to shut most of its research work at a large R&D
center in Sandwich, southern England, where Viagra was invented,
with the loss of nearly 2,000 jobs.
Any eventual deal will be studied by antitrust regulators around the
world, including those in China, where scrutiny could be especially
intense since Pfizer and AstraZeneca rank No. 1 and No. 2 among
multinational suppliers in the country's prescription drug market.
($1 = 0.5919 British Pounds)
(Additional reporting by Paul Sandle, Kate Holton, Brenda Goh, Chris
Vellacott and Soyoung Kim; Editing by David Goodman, David Holmes
and Will Waterman)
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