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Pfizer said to plan raising AstraZeneca bid for second time

LiveMint logoLiveMint 13-05-2014 David Welch

New York/Geneva/London: Pfizer Inc. is planning to sweeten its bid for UK rival AstraZeneca Plc for a second time, sources said. Pfizer and its advisers are crafting a new offer that would increase the value modestly above the current £50-a-share (about $84) level while bumping the cash portion, said two of the people, who asked not to be identified discussing private information. Pfizer will probably wait until after UK government hearings to raise its bid, they said.

Pfizer is putting together a sweetened offer before it considers whether to make a hostile takeover attempt by bringing its proposal directly to AstraZeneca’s shareholders, the people said. Pfizer would prefer a friendly deal since its unsolicited overture already has attracted political scrutiny in the US and UK. AstraZeneca rejected Pfizer’s second proposal on 2 May, valued at £62.6 billion ($106 billion) and made up of 32% cash and the rest in stock.

Ian Read, Pfizer’s chief executive officer, and Pascal Soriot, his counterpart at AstraZeneca, will testify at two separate parliamentary committees this week, as the UK government seeks guarantees that Pfizer will preserve jobs and medical research in Britain.

Pfizer is concerned it’s beginning to lose momentum on the deal, said two of the people, and will be talking further to investors and listening to what comes out of the hearings as it evaluates its next steps.

Representatives for Pfizer and AstraZeneca declined to comment.

Tax rates

Pfizer has said it would move its legal residence to the UK, gaining a lower tax rate, while the company’s operational headquarters would remain in New York. In doing so, Pfizer would join more than a dozen other companies that have said they are making or considering such transactions since 2012.

Read has said the tax benefits, the chance to avoid US taxes on $70 billion in cash built up overseas and AstraZeneca’s promising cancer medicines are among the reasons Pfizer is pursuing the deal.

The tax issue has sparked criticism from US lawmakers, including Senator Ron Wyden, an Oregon Democrat and chairman of the senate finance committee that oversees tax legislation. Wyden said he may take up a proposal that would make it harder for US companies to shift their legal addresses to avoid taxes.

Cancer drug

A deal with AstraZeneca would help Pfizer add early-stage drugs that use the body’s own immune cells to recognize and attack tumours. Atop the list is MEDI4736, AstraZeneca’s immuno-oncology drug expected to compete with experimental therapies from drugmakers including Bristol-Myers Squibb Co., Merck and Co. and Roche Holding AG.

British lawmakers earlier this month mobilized against Pfizer’s attempt, demanding business secretary Vince Cable secure assurances on jobs and research investment. Part of Pfizer’s pitch to British officials is that AstraZeneca is a global company and has substantial operations and people outside the country, said one of the people.

About 40% of AstraZeneca’s revenue in 2013 came from North America, and more than 30% from outside of Europe, data compiled by Bloomberg show.

AstraZeneca chairman Leif Johansson said the drugmaker will return to growth as an independent company and listed the reasons for rejecting the Pfizer offer in a video this month. Among them: The bid significantly undervalued the company, he said.

Job assurances

Pfizer has pledged to keep at least one-fifth of the combined companies’ research and development workers and substantial manufacturing plants in the UK for at least five years after a deal.

In the US, the governors of Maryland and Delaware have asked for similar assurances, raising concerns that Pfizer would reduce about 5,700 AstraZeneca jobs in their states as part of a cost-cutting effort after the acquisition. Read wrote to the governor’s on Sunday saying it was too soon in the effort to gain AstraZeneca to discuss potential effects on jobs.

An acquisition of AstraZeneca would add to the $127 billion of mergers among pharmaceutical companies this year, according to data compiled by Bloomberg. An industry-wide recalibration that has been building since 2011 reached a peak last month with a flurry of activity by GlaxoSmithKline Plc, Novartis AG and Valeant Pharmaceuticals International Inc. Bloomberg

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