By Andrew Ward and Vanessa Houlder in London and Barney Jopson in Washington
Pfizer has ignited a takeover battle for one of the biggest prizes in the global pharmaceuticals sector with its £60bn approach for arch rival AstraZeneca in a move that has raised political concerns on both sides of the Atlantic.
Shares in AstraZeneca jumped 15 per cent on Monday after Pfizer publicly urged the London-listed company to enter talks over what would be the biggest foreign takeover in UK corporate history.
Downing Street gave a cautiously positive reaction to the US drugmaker’s plan, citing its intention to shift the merged group’s tax domicile to the UK if the deal was successful as proof of Britain’s attractiveness to foreign investment.
However, some politicians, union leaders and scientists expressed fears over what a takeover of Britain’s second-biggest drugmaker after GlaxoSmithKlinewould mean for jobs and investments. AstraZeneca employs about 7,000 people in the UK and accounts for more than 2 per cent of exported goods.
Pfizer’s disclosure that as part of the deal it wouldmove its tax domicile to the UK faces political headwinds in Washington, where President Barack Obama’s administration has raised alarm over what has become a trend among US multinationals.
Dave Camp, the senior Republican tax writer on Capitol Hill, said: “It is a real problem when the tax code provides an incentive for US-based companies to move overseas, often times taking good jobs with them.”
AstraZeneca said a tentative £46.61 per share offer by Pfizer made in January “very significantly” undervalued the company and that, in the absence of an updated proposal, it would not open negotiations.
Ian Read, Pfizer chief executive, said a deal would produce value for shareholders of both companies by creating a powerhouse in treatments for conditions including cancer, diabetes and heart disease. It would also produce big cost efficiencies – and tax savings resulting from the UK’s lower corporate tax rate and the potential to avoid US taxation of Pfizer’s offshore revenues.
Pfizer would aim to bring its average tax rate down from more than 27 per cent to around AstraZeneca’s 21 per cent figure.
People close to AstraZeneca said the company would consider a deal if Pfizer made a sufficiently high offer but, in the meantime, it was focused on building a defence against the US company’s approach. This could include disposals of non-core businesses to unlock shareholder value.
Analysts said it might also consider a merger of equals with a smaller US drugmaker or biotech company.
Andrew Baum, analyst at Citigroup, said he expected Pfizer would eventually prevail but predicted it would have to offer at least £50 a share with 40 per cent in cash to win AstraZeneca’s approval.
The deal has rekindled political fears over the loss of industrial expertise and investment in the British life sciences sector.
Vince Cable, the UK business secretary, pledged on Monday night to protect high-skilled jobs and long-term investment in research and development in the UK. “I am committed to ensuring that the UK continues to be a world-leader in science and pharmaceuticals research and development.”
Mr Read stressed his commitment to investment in the UK. “We have great respect for AstraZeneca and its proud heritage as an innovation-driven biopharmaceutical business with a rich science-based foundation in both the United Kingdom and Sweden.”
The US group said any combination of the two companies would have management teams based on both sides of the Atlantic, with its headquarters in New York and it would be listed on the New York Stock Exchange.
However, a new holding company would be created to establish the group’s tax domicile in the UK – shielding its offshore revenues from US repatriation taxes.
Jeffrey Holford, analyst at Jefferies, said: “Pfizer’s interest in AstraZeneca appears more heavily motivated by financial synergies than anything else, with the use of [overseas] cash and tax benefits being the main driver.”
Pfizer’s proposed change in tax domicile revived calls for reform of the US tax system from members of Congress who say it is harming the American economy.
In February Mr Camp, chairman of the House Ways and Means committee, unveiled a far-reaching tax reform plan that would end those incentives and “make America a more attractive place to invest and do business”, he said in a statement on Monday.
Reacting to Pfizer’s plan, a spokeswoman for Ron Wyden, the Democratic chairman of the Senate finance committee, said: “This further demonstrates the urgency for tax reform.
“Now is the time to undertake comprehensive reform to ensure our country stays competitive on a global stage and continues to be the best place for corporate investment.”
Let the games begin. Pfizer has announced a plan to buy AstraZeneca for more than $96.5bn in an attempt to force the UK drug company to the negotiating table. It must figure pressure from shareholders will succeed where discreet chats with the board have failed.
Pfizer has built up one of the largest stockpiles of offshore earnings of any US multinational. Its most recent filings reported that its international subsidiaries had $69bn of unremitted overseas earnings, a sizeable share of the trillion dollars Moody’s, the credit rating agency, recently calculated was held overseas by US companies.
News of Pfizer’s interest comes at a time when M&A in the pharmaceuticals industry is booming as never before. There has been $163bn of deals already announced in 2014, the highest level reached at this point in the year, according to Dealogic. If it goes ahead with a takeover, Pfizer’s deal would be the largest so far this year, eclipsing Comcast’s $41bn bid for rival Time Warner Cable.
One top 10 AstraZeneca investor said: “The company and board at AZ need to be clearer over the price they would take … If the offer they were willing to accept was £60 a share, then I would be in favour as there are huge synergies here.
A top 20 shareholder said: “I would be looking for something like £55 a share. There are political issues here, but I feel the synergies would make up for any uncertainty over a UK company being taken over by one in the US.”
Additional reporting by Ed Hammond in New York and George Parker and David Oakley in London