British and French politicians have traditionally had diametrically opposed attitudes to takeovers of their corporate crown jewels by foreigners. In Pfizer Inc.’s (PFE) bid for AstraZeneca Plc (AZN), the difference is a lot smaller.
The offer worth more than $106 billion, the largest ever for a U.K. company, prompted demands for guarantees on jobs, facilities, and retaining research work from Prime Minister David Cameron’s Conservative-led coalition. Opposition Labour Party leader Ed Miliband called for a “public-interest test” on major deals by foreign acquirers and Liberal Democrat Business Secretary Vince Cable said he might support one.
With U.K. national elections a year away today, British leaders are sounding more like their counterparts in France, where lawmakers can intervene to stop companies deemed “strategic” from being bought, and the state rarely hesitates to get involved. President Francois Hollande said yesterday that General Electric Co.’s proposed $17 billion acquisition of most of Alstom SA (ALO) was “not acceptable” in its current form because of its impact on employment. Cameron said today he’s “not satisfied” with the Pfizer offer so far.
“The U.K. government is reacting more strongly now to Pfizer’s intention to take over AstraZeneca because they need to start sending a clear message to citizens that they are concerned about them as the next general election gets closer,” said Daniel Lacalle, a senior fund manager at Ecofin Ltd. in London.
U.K. politicians’ attitudes reflect the anxieties of a country that’s seen high-profile companies from carmakers to confectioners absorbed by foreign buyers.
Unlike in the U.S., Canada, France and Australia, British officials have no direct legal mechanism to halt foreign acquisitions -- an absence illustrated by Kraft Foods Inc.’s successful takeover of chocolate-maker Cadbury Plc in 2010 over the objections of lawmakers, with the subsequent closing of a factory in southwest England.
Chancellor of the Exchequer George Osborne was probably too enthusiastic in quickly hailing the Pfizer bid, which would see the American company move its legal domicile to the U.K., as positive for the country and an endorsement of its corporate-tax regime, according to two government officials with knowledge of the discussions.
Cameron’s government is now trying to show it is neutral by stressing that it’s talking to both Pfizer and AstraZeneca, the people said on condition of anonymity because the talks are private. Cable told lawmakers yesterday the government is “operating within serious European legal constraints.”
Today, the prime minister told Parliament at his weekly question-and-answer session that evaluating the bid would include examining its impact on jobs and science in the U.K.
“The commitments that have been made so far are encouraging,” Cameron said. “I’m not satisfied. I want more.”
The chief executive officers of both companies will testify before the House of Commons Business and Science Committees over two days next week, the panels said today.
Cameron, Cable and Osborne have Paris to look to for a recent example of navigating an unexpected offer from an American company. After Bloomberg News reported GE’s Alstom bid on April 23, French officials led by Economy Minister Arnaud Montebourg began a last-ditch effort to encourage a counterbid from Siemens AG. Even after securing guarantees on jobs and keeping French sites from GE CEO Jeffrey Immelt, Montebourg and Hollande said this week the American company’s offer still isn’t sufficient.
The U.K.’s generally hands-off approach to deal making has helped make it more attractive than its neighbors to foreign acquirers. Buyers from outside Europe have spent about $358 billion on deals in the U.K. over the last five years, not including AstraZeneca, data compiled by Bloomberg show. That compares with just $86 billion in France and $114 billion in Germany.
A takeover of AstraZeneca would be the biggest-ever acquisition of a U.K. company by value -- about five times bigger than the largest transaction of the past half-decade, Liberty Global Plc (LBTYA)’s $22 billion deal for U.K. broadband provider Virgin Media last year.
A deal would also mean ceding control of a large part of the country’s pharmaceutical infrastructure. The London-based company has about 7,000 domestic staff, a major R&D facility in Cambridge, eastern England, and a 2,900-employee global hub for cancer research outside Manchester in the north.
Pfizer, based in New York, is very unlikely to proceed with a bid for AstraZeneca if it can’t win the blessing of Cameron’s government, a person familiar with the matter said.
Even in the absence of a direct mechanism to block the deal, the U.K. could make doing business much more difficult for Pfizer if it chose to, especially in an industry as heavily regulated as pharmaceuticals, the person said, asking not to be identified discussing private deliberations.
According to one Cameron aide, there are many more political risks for the government if the takeover goes ahead than if it collapses. As with previous deals in which the government has been involved, such as Lloyds TSB Group Plc’s 2008 rescue of HBOS Plc, ministers risk being criticized if job losses follow or the deal is seen as a failure.
AstraZeneca Chairman Leif Johansson told Cameron in a May 2 phone call that even by engaging with Pfizer, the government risked being seen as supporting the takeover, according to a person familiar with the call.
Along with Cameron, London Mayor Boris Johnson, a possible candidate to succeed Cameron as Tory leader, has said he’s concerned about AstraZeneca being in foreign hands.
After meetings with U.K. officials, Pfizer has pledged to keep about 20 percent of the combined group’s research staff in the U.K. for five years. That promise comes with a caveat, though: that Pfizer may have to “adjust these obligations should circumstances significantly change,” the company said.
Both Cable and Miliband have said they’re worried about Pfizer’s commitment to those promises.
Britain’s government is almost alone among major economies in having never in recent years scuttled a major foreign takeover. German Chancellor Angela Merkel’s government torpedoed the proposed merger of BAE Systems Plc (BA/) and what’s now Airbus Group NV (AIR) in 2012, citing concerns over the loss of German control and jobs.
In recent years Canada has blocked deals by BHP Billiton (BHP) Ltd. and Petroliam Nasional Bhd., although the latter was eventually approved. Australia intervened last year to stop the $2.9 billion acquisition of GrainCorp Ltd. by Archer-Daniels-Midland Co.
While British politicians are clearly concerned about the Pfizer deal, its size and relevance to high-tech research make it a special case, said Stephen Blackshaw, a partner in London at law firm Sidley Austin LLP. For that reason the country isn’t likely to “go down the road to a more formalized test” for foreign deals, as in Canada and Australia, he said.
Pfizer’s case isn’t being helped by concerns it’s moved to shut down research after past acquisitions, and by its decision in 2011 to close a lab in Sandwich in southeast England that cost about 2,000 jobs. Since it bought rival Wyeth in 2009, it’s cut $4.6 billion in research spending and narrowed its scientific focus to six areas of medicine. Pfizer’s plan to be domiciled in the U.K. for tax purposes would also give it a lower tax rate.
“I’m sure these companies are motivated by hard-headed commercial considerations, and we should be motivated by hard-headed considerations of national interest,” Cable told lawmakers yesterday. “We see the future of the U.K. as a knowledge economy, not a tax haven.”