The Telegraph
Saturday , May 3 , 2014

Astra spurns Pfizer offer

London, May 2 (Reuters): US drug maker Pfizer Inc raised its offer for AstraZeneca Plc to 63 billion ($106 billion) on Friday, but the British company promptly rejected the proposal, which would create the world’s biggest pharmaceuticals company.

Pfizer’s pursuit of AstraZeneca, which would boost the American company's pipeline of cancer drugs, cut its tax bill and create significant cost savings, comes amid a wave of deal-making in the healthcare sector.

AstraZeneca’s board said it had “no hesitation” in rejecting the proposals, which “substantially undervalue” the company and were not an adequate basis on which to engage with its suitor.

The US group would much prefer an agreed deal with its rival, since hostile takeovers typically take longer, require a higher final price and carry more risks because the bidder cannot access the target’s books to assess its business.

Friday’s 50 ($84.47) a share indicative offer follows AstraZeneca’s decision to rebuff an earlier proposal that valued it at 58.8 billion, or 46.61 per share.

“Given where the shares have come from, this doesn't look unreasonable,” said one fund manager whose institution is among the 10 biggest investors in AstraZeneca.

AstraZeneca shares were trading at 30 a year ago, but confidence in the company’s cancer drug pipeline has built up strongly since then.

“We expect Pfizer ultimately to have to sweeten its offer based on discussions we have had with investors, many citing a price within the 52-55 range and some above this, and our analysis of the EPS accretion for Pfizer,” said Mark Clark, an analyst at Deutsche Bank.

Investors had previously said they were looking for at least 50 a share and also wanted more cash in the mix. The latest deal would offer 32 per cent cash and 68 per cent shares, little different from the 30-70 split offered originally.

After the initial 46.61 approach, made in January, was disclosed earlier this week, AstraZeneca said that the offer fell “very significantly” short and the small cash component would leave investors exposed to the risks faced by Pfizer in executing an ambitious mega-merger.

Some analysts are convinced Pfizer will raise its offer again, not least because it wants to get the deal done before any possible change in US tax rules that might prevent it moving its tax base to Britain.

Pfizer’s latest proposal would have seen shareholders receiving, for each AstraZeneca share, 1.845 shares in the combined company and 15.98 in cash.

Political storm

Shares in the British group slipped back 0.4 per cent to 47.99 on Friday morning.

The stock had already gained ground in late trading on Thursday on speculation that Pfizer would come back with an improved offer, including a larger cash element, and there was some disappointment that the cash component had not increased more.

The takeover, which would be the largest acquisition of a British company by a foreign business, has stirred political controversy in Britain.

In an attempt to smooth relations with the government, Pfizer chief executive Ian Read wrote to Prime Minister David Cameron, promising to complete a substantial new research centre planned by AstraZeneca in Cambridge and retain a manufacturing plant in Macclesfield.