Three Reasons AstraZeneca Were Right to Reject Pfizer

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The transatlantic stand-off between the two pharmaceutical giants, Pfizer and AstraZeneca, is over; possibly for good. With Pfizer having failed to conclude a £69bn deal with the British-Swedish multinational pharmaceutical firm, almost £7bn was wiped from AstraZeneca’s share value.

AstraZeneca’s board, which decided that Pfizer’s bid was inadequate, has subsequently been criticised by major shareholders for “failing to engage”. Pfizer meanwhile, has been accused of being driven purely by the lure of lower taxes, job cuts and budget reductions. We have rounded up the reasons why we think that Astra Zeneca were right to reject the takeover bid from Pfizer.

Jobs Threatened

The proposed takeover had major implications for several sectors. From major health and pharmaceutical recruiters to manufacturers and research companies, all would have been affected by Pfizer’s huge takeover bid. Despite repeated initial assurances from Pfizer’s CEO, Ian Read, both AstraZeneca and Pfizer finally acknowledged in last week’s parliamentary select committee meeting that there would be cuts to both jobs and research.

Indeed, even before the failure of the bid, many academics, scientists and even union leaders were accusing Pfizer of being driven purely by the possibilities of a lower taxes and reductions to the research budget. Pfizer had already been described by a former boss of AstraZeneca as a “praying mantis” ready to “suck the lifeblood out of their prey”.

However, AstraZeneca’s current chairman, Leif Johansson said that the deal represented “a significant risk to shareholders.”

Threats to R & D

The potential threat to research, had the deal succeeded, was very real; particularly as much of today’s R & D is outsourced in order to avoid high capital and staff costs within parent companies. In what is already a highly fragmented industry, it is only organisations such as ICON that have the necessary expertise and experience to conduct clinical trials and development. Both AstraZeneca and Pfizer acknowledged that a merging of the two companies would have resulted in less research and development being carried out as a result of budget cuts.

Therefore, had the takeover succeeded, the significant benefits of AstraZeneca and Pfizer engaging in independent research programmes would have been lost. The result would have been an inevitable reduction in pharmaceutical discovery and its subsequent development.

Conflict of Interest

It is believed that one of the motives behind the takeover bid was Pfizer’s interest in evading tax, with the opportunity to pay the UK corporate tax rate of 20%, rather than the 35% rate applied in the US, if it bought AstraZeneca. This caused AstraZeneca chairman Leif Johansson to state that Pfizer’s pursuit had been “fundamentally driven” by the corporate financial benefits.

There is still a slim possibility that AstraZeneca and Pfizer might return to the negotiating table in the future. Under the rules laid down by City regulators, AstraZeneca shareholders could overrule the board’s rejection of the Pfizer’s final offer. Most city analysts, however, believe the possibility of a deal is now dead.

However, it could be said that after all the drama, there are still some winners; pharmaceutical and health providers, those who will not now lose their jobs and, in the end, the rest of us, all benefit from the diverse and beneficial research by two of the world’s largest pharmaceutical companies being allowed to continue. For the moment anyway.

4 replies »

  1. You have no idea what you are talking about….Pfizer decimated Wyeth R&D and would do the same to AZ. Also, Pfizer/Wyeth’s combined R&D budget dropped from around 12 billion to 6 billion a year after the merger. Many Wyeth R&D employees were laid off almost immediately after the merger. I applaud AZ leadership for staying the course when it would be easier to sell and collect a huge paycheck.

  2. Thi is nonsense..
    1.Jobs threatened. These would be the admin jobs not the scientific. jobs are invariably lost in any consolidation. Tough yes but thats how we get more effisient companies its called Capitalism.
    2.Threat to R&D. This red herring has been been trumeted by numerous sources. If Pfizer intented to destroy the Astra R&D effort there would be no point in buying them in the firat place. Both are desperately short of new drugs in the pipeline. More likely they would expand it
    3. GE did not pay any taxes last year now thats an absudrity but little has been made of that. Companies respond to Taxes Govs create as best they can as does every Taxpayer. Its a game billions play around the world. millions.
    4 This takeover failed becasue of arrogant & greedy Astra execs who wanted to hang on to their massive financial packages & jobs just like Politiicians & trashed the much vaunted Shareholder Value in the process.
    Litlle has also been said about that. Astra gets 5 stars for PR but nothing else..

  3. Pfizer’s problem is that their drug pipeline is crap. One of their two products of note — Viagra — now faces the possibility that a competitor, Cialis, may go over the counter. The other, Lipitor, is part of a class of drugs that is embroiled in controversy.

    It’s a good thing for consumers that Pfizer did not succeed. One can only imagine that combining the company behind Lipitor with the one behind Crestor would have led to even more deception in the push to shove statins down everyone’s throats. Maybe they’d have jointly advocated replacing flouride in public water supplies with statins.

    Now, if they wanted to put Viagra in the water, that would be another story…

  4. As you state, a major motivation here was clearly the desire to pay a lower tax rate. Score this a win for taxpayers. And a win for R+D.