Pfizer offered 46.61 pounds a share in cash and stock for AstraZeneca in January, and AstraZeneca declined to pursue negotiations, Pfizer said in a statement today. The proposal is about 14 percent above the April 25 close for AstraZeneca. The stock today climbed above that price, gaining the most in more than two decades.
For now, Pfizer is still trying to draw AstraZeneca into talks.
“We tried to get a mutual announcement to say we were in preliminary discussions,” Pfizer Chief Executive Officer Ian Read said on a conference call today. “AstraZeneca rebuffed that, which is why we were forced to make the announcement.”
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If Pfizer is able to consummate the deal, it would be among the biggest ever U.S. company to leave the country’s border. Read said that while he hadn’t discussed that with the U.S. government, he was confident it could get done.
‘Significantly Undervalued’
Pfizer wants to reach an agreement that AstraZeneca’s board can endorse and is considering its options.
“Clearly the reason Pfizer has gone public is to try to force a deal,” said Mark Clark, an analyst at Deutsche Bank in London. “The price that AstraZeneca is willing to talk about is nowhere near 46 or they wouldn’t have been summarily dismissed.”
Pfizer’s January proposal “very significantly undervalued” AstraZeneca, the U.K. company said in astatement. AstraZeneca also was concerned that Pfizer wanted to pay 70 percent of the price in shares, AstraZeneca said. The company concluded that, absent a specific and attractive proposal, it was not appropriate to engage in discussions with Pfizer.’’
“They’re sellers, we’re buyers,” Read said. “Of course they’re going to say it’s undervalued.”
Overseas Cash
Another key component of the deal is moving Pfizer outside the U.S. for tax purposes. A deal would allow Pfizer to use some $70 billion of cash it has built up overseas that would be subject to taxes if brought back to the U.S. and, because the combined company would be incorporated in the U.K., would lead to a lower tax rate.
“I don’t see why there’s any conflict in what we’re doing with U.S. policy,” he said on the conference call. The company would keep its operational headquarters in the U.S., and maintain a U.S. stock listing.
The Pfizer CEO has complained before about the U.S. corporate tax rate -- the highest in the world. “We saw how difficult it was to do business development with an uncompetitive tax rate,” he said on the conference call.
Read contacted AstraZeneca Chairman Leif Johansson on April 26 for the first time since January, with no specific proposal, AstraZeneca said today.
The last few months after the initial approach convinced Read it was time to try again. “We saw strength in our pipeline as results came through, that made us feel we’re coming from a position of greater strength and confidence, and we saw news come through their pipeline,” he said.
U.K. Rules
Pfizer has until May 26 to make an offer for AstraZeneca, or say that it won’t bid, under U.K. takeover rules.
Pfizer may be trying to accelerate talks with AstraZeneca in part because the U.K. drugmaker is scheduled to present promising data at the annual meeting of the American Society of Clinical Oncology, which begins May 30 in Chicago, according to one person familiar with the situation who asked not be named as the matter is confidential.
AstraZeneca rose 14 percent to 46.67 pounds in London, the biggest one-day advance since at least 1993. Pfizer climbed 4.2 percent to $32.04 in New York. The average premium for pharmaceutical takeovers of at least $1 billion was 30 percent over the past five years, data compiled by Bloomberg show.
‘Considerably Higher’
“The price that Pfizer will have to pay is considerably higher than the current one,” said Julian Chillingworth, chief investment officer for Rathbone Brothers Plc, a London-based investment firm that owns AstraZeneca shares and has 22 billion pounds under management. “That price would have to begin with a 50 and not a 40.”
An acquisition of AstraZeneca would add to the $127 billion of mergers among pharmaceutical companies this year, according to data compiled by Bloomberg. An industrywide recalibration that has been building since 2011 reached a peak last week with a flurry of activity byGlaxoSmithKline Plc (GSK), Novartis AG and Valeant Pharmaceuticals International Inc. (VRX)
Under Pfizer’s proposal, the two companies would be combined into a U.K.-based holding company, with headquarters in New York, Pfizer said. The deal would give the company flexibility to proceed with a potential split-up, as Pfizer has been considering, Pfizer said.
“We’ve had really extensive experience in this and we don’t see this as a distraction,” Read told reporters on a conference call. “We’re satisfied that these large deals can be done and create value. This is something society is requesting of the pharmaceutical industry. They want products faster and they want better value.”
Pfizer would seek to domicile the new company in the U.K. for tax purposes in order to shield AstraZeneca from the higher U.S. corporate tax rate, Read said. AstraZeneca’s business, which is structured for a 21 percent to 22 percent tax rate, couldn’t survive if it was taxed at 38 percent, he said.
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