Investors unhappy: AstraZeneca rejects 'final' Pfizer bid

By Updated at 2014-05-19 16:41:35 +0000

AstraZeneca has rejected Pfizer's £69bn takeover approach, saying the bid undervalues the UK company and poses too many risks.

AstraZeneca's shares tumbled 13% to £42.04 on the news, wiping about £8bn off the company's market value as investors concluded that the chance of a deal was now remote. Some of the company's biggest shareholders, including the fund manager Jupiter, criticised the AstraZeneca board for not engaging with Pfizer.

Leif Johansson, AstraZeneca's chairman, said Pfizer's £55-a-share valuation fell short of the price that the US company was told was necessary.

Pfizer said it was prepared to pay £53.50 on Friday, but AstraZeneca said at the weekend that the price needed to be at least 10% higher, valuing the company at about £74bn.

Pfizer announced on Sunday night that it would make a final approach at £55 a share and that it would not raise its offer further. It also increased the cash portion of the bid from 33% to 45% with the rest payable in Pfizer shares.

Johansson said Pfizer had already said its £53.50 approach was its final offer and that the US company did not alert AstraZeneca to Sunday night's increased proposal.

Pfizer said it would not make a hostile offer by going straight to AstraZeneca's shareholders, but it called on them to urge the board to enter talks. Pfizer has until 26 May to make a firm offer unless AstraZeneca's board asks the takeover panel for an extension.

Johansson said Pfizer's approach, which falls short of a formal bid, undervalued the Anglo-Swedish company's prospects for producing new drugs as an independent business.

He added that Pfizer's plans to move to the UK for tax purposes and its record for slashing research spending endangered the future of a combined company.

"Pfizer's approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimisation," he said.

"From our first meeting in January to our latest discussion yesterday, and in the numerous phone calls in between, Pfizer has failed to make a compelling strategic, business or value case. The board is firm in its conviction as to the appropriate terms to recommend to shareholders.

"We have rejected Pfizer's final proposal because it is inadequate and would present significant risks for shareholders, while also having serious consequences for the company, our employees and the life-sciences sector in the UK, Sweden and the US."

The rejection appeared to end a battle between the two companies unless AstraZeneca shareholders push the board to talk to Pfizer without a higher offer.

Pfizer said it was considering its options.

Johansson told the BBC's Today programme he did not know if the deal was dead.

"I have no idea. This has been going on for quite some time, and in very deep engagement over the whole of the weekend. Pfizer now says this is the final offer. I have to believe what they say."

Savvas Neophytou, an analyst at the brokers Panmure Gordon, said he thought shareholders could yet force AstraZeneca to talk to Pfizer.

"There is a lot going on and I suspect there are more developments to come," he said. Under Britain's takeover rules, if Pfizer made a firm offer for AstraZeneca, the board would have to recommend it to shareholders and it could not be for more than £55 a share.

Pfizer's pursuit of AstraZeneca has divided opinion among shareholders, with some calling for the firm to negotiate with Pfizer while others have supported the board in resisting the bid.

A top 10 investor said the board had failed to represent shareholders' interests, but that a deal now looked unlikely.

"This is the single biggest case of value destruction on behalf of shareholders of all time," the fund manager said. "I think it is closed. Personality clashes have triumphed over shareholder value creation."

By mid-morning on Monday, AstraZeneca's market value was £53bn, £16bn less than the price Pfizer had indicated it would pay.

Alistair Gunn, a fund manager at Jupiter, which is one of AstraZeneca's top 30 shareholders, said: "We are disappointed the board of AstraZeneca has rejected Pfizer's latest offer so categorically. They should have at least engaged in a constructive conversation with Pfizer on the details of the offer to assess the opportunities that a combined entity could bring.

"There now seems little room left to manoeuvre with Pfizer having ruled out a hostile bid. We will be expressing our dissatisfaction to the AstraZeneca board over the way the bid process has been handled up to now."

The Viagra maker's offer also stoked a political row because of the potential impact on jobs and Britain's science base.

On Monday David Cameron said he would remain neutral about AstraZeneca's rejection of the bid from Pfizer, although officials are still involved in talks with both companies.

Despite Pfizer's decision not to raise its offer any further or launch a hostile takeover, the prime minister's spokesman said "official-level engagement" was continuing, in a sign the government does not believe prospects of a deal are dead.

Asked for his reaction to the latest twist, Cameron said it was a "matter for the companies to resolve themselves" but he would continue to follow events closely.

"The government, quite rightly, should be neutral in this. What we should do, though, is always be engaged with both companies – as we have been – to try and make sure that, whatever the outcome, British science, British jobs, British manufacturing, that they get proper and deserved attention," he told the BBC.

The prime minister has been accused by Labour of being a "cheerleader" for the deal, but Downing Street said he had simply tried to act in the best interests of British jobs and scientific research.

Cameron had praised Pfizer for making "good progress" in offering assurances on jobs but said more was needed to satisfy the government.

However, there did not appear to have been any further promises included as part of Pfizer's higher £55-per-share offer that was rejected by the Astrazeneca board.

In contrast to the government's position, Chuka Umunna, the shadow business secretary, said AstraZeneca's move to reject Pfizer's final bid was "welcome".

"While Labour was standing up for British jobs and British science, David Cameron and his ministers were cheerleading for a takeover bid where one of the primary motivations was financial engineering – cited by the AstraZeneca board as one of the execution risks justifying rejection of the bid," he said.

"Ultimately it is for the shareholders to determine, but it is welcome the AstraZeneca board has remained resolute and sought to act in the best long-term interests of the company and its vital work in developing new life-saving drugs. Pfizer has said today that it will not seek to launch a hostile bid and must not renege on this promise."

Vince Cable, the business secretary, also said the government was "keeping all options open" following AstraZeneca's rejection of Pfizer's offer. "We are monitoring what is happening since the AstraZeneca board very firmly rejected the proposal," he said. "The government's position is unchanged. We are keeping all options open. We have made it very clear that what we're out to protect is the national interest in research and development, manufacturing, jobs. The government remains neutral."

At two parliamentary hearings last week, Pfizer's boss, Ian Read, tried to convince MPs that he wanted to invest in UK scientific research, but also admitted that the combined business would have fewer scientists and less research spending than the two companies have now.

AstraZeneca's chief executive, Pascal Soriot, told the Guardian last week that AstraZeneca's reputation could be damaged by Pfizer's tax avoidance plans, which involve it being based in the UK in order to keep its cash pile away from the US tax authorities. He also raised concerns about the proposed break-up of the business, which would have split AstraZeneca's assets between three new Pfizer divisions.