By Hester Plumridge
LONDON-- AstraZeneca PLC Monday rejected what U.S. peer Pfizer
Inc. said was its final increased offer, seeming to scuttle what
would have been a huge trans-Atlantic pharmaceutical merger and
sending its shares plummeting as much as 15%.
Late Sunday, Pfizer made a final offer for AstraZeneca valued at
about $120 billion, or GBP55 ($92.51) a share with a 45% cash
component, after the British pharmaceutical company rebuffed its
latest effort to enter takeover talks.
AstraZeneca said it made clear on a phone call to Pfizer Sunday
afternoon that an offer more than 10% above the GBP53.50 Pfizer
offered Friday--which would equate to a figure greater than
GBP58.85--would be needed to secure the board's recommendation. A
few hours later, Pfizer came back with its "final" offer of GBP55 a
share.
The U.K. drug company's shares recovered somewhat from their
worst levels of the session but lately were down 10.5% to GBP43.18
in London trading.
While the rejection is a near-fatal setback in any potential
deal between the two drug giants, U.K. takeover rules give Pfizer
and AstraZeneca until May 26--four weeks from the confirmation of
Pfizer's earlier approach--to enter takeover discussions. That
allows time for any investors dismayed with AstraZeneca's large
share-price fall Monday to push the board to engage in talks.
Pfizer cannot come back with an offer higher than GBP55 before
May 26 unless the AstraZeneca board agrees to talks, and it has
pledged not to pursue a hostile bid. If AstraZeneca were to
recommend the current bid before that date, Pfizer could improve
the terms of its current offer three months later, according to the
takeover rules.
"I think effectively what they're trying to do is turn up the
heat on AstraZeneca shareholders in the hope that they will bring
pressure to bear on the board," said Simon Allport, head of
international public securities at law firm Bird & Bird.
"I think this rejection will go down poorly with investors who
are urging AZ to engage with Pfizer," Credit Suisse said in a note
to clients Monday, adding that investor feedback was that the GBP55
level was fair. "Investor pressure on AZ really now becomes key in
this process."
One top-10 shareholder who had been pushing last week for the
AstraZeneca board to engage with Pfizer reacted with displeasure to
the rejection. "This looks to me like a case of blatant disregard
of shareholder interest," the shareholder said.
"We have engaged deeply with Pfizer, we have really tried to
understand what the values for our shareholders are," AstraZeneca
Chairman Leif Johansson said Monday in an interview with The Wall
Street Journal, adding the offer was rejected because it "does not
meet the value that we would put on a stand-alone company." The
board's decision was unanimous, a person close to the company
said.
Mr. Johansson highlighted concerns over the U.S. tax
implications of a deal as a key execution risk, playing down U.K.
regulatory risk. "In the end, in the U.K., it is for shareholders
to decide whether they want to sell their company," he said.
Pfizer is seeking to acquire AstraZeneca in a so-called
inversion deal, a kind of merger in which a U.S. company changes
its domicile to the relatively tax-friendly home of its target. The
U.S. drug giant hopes to reduce its annual tax bill sharply by
changing its domicile to the U.K., but U.S. lawmakers have said
they might seek to discourage further inversions.
Mr. Johansson said he had "great respect" for the plurality of
shareholder views on a deal. The board will continue to meet with
investors Monday, as it did last week, he added.
Large investors Aberdeen Asset Management PLC and Investor AB
have previously voiced public support for the AstraZeneca board.
Aberdeen Chief Investment Officer Anne Richards said Monday that
the latest offer "certainly wasn't a knockout," and cited risks
about takeovers disrupting research and development.
A spokesman for Aberdeen said Monday the company was continuing
to meet with both companies to discuss the situation. Investor AB
couldn't be reached for comment.
"They can either accept it or reject it," Pfizer Chief Executive
Ian Read said Sunday in an interview with The Wall Street Journal.
"They have until the 26th of May."
"They seem to have quite a punchy view of what their pipeline is
worth," said Dan Mahony, a health-care fund manager at Polar
Capital and a small AstraZeneca investor, adding he was frustrated
with the rejection. "I don't think GBP55 was too unreasonable, to
knock it completely out of the park again."
Mr. Mahony said he doubted another bidder would emerge, and that
he didn't see Pfizer returning with another offer.
"I get the impression Pfizer will just walk," he said. "I think
a lot of these companies are more financially disciplined than they
were 15 years ago."
Mr. Mahony added that AstraZeneca management was now in a
difficult position if it failed to live up to ambitious new sales
targets in coming years. "The next three years are going to be
really tricky for them as [cholesterol drug] Crestor goes off
patent."
Both companies are grappling with aging portfolios and losing
billions of dollars in sales to generic competition. Each company
posted a 6% drop in sales last year. Pfizer's sales fell to $51.6
billion, while AstraZeneca's dropped to $25.7 billion.
AstraZeneca shares closed Friday at GBP48.23, valuing the
company at GBP60.89 billion.
Jonathan Rockoff and Ian Walker contributed to this article.
Write to Hester Plumridge at hester.plumridge@wsj.com
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