May 8 (Bloomberg) -- The governors of Maryland and Delaware have asked Pfizer Inc. Chief Executive Officer Ian Read whether jobs will be cut in their states after the drugmaker promised to keep people employed in the U.K. as a way to further a $100 billion-plus bid to buy AstraZeneca Plc.
If the acquisition occurs, it would allow Pfizer to move its legal address from New York to the U.K. to gain a lower tax rate. Read told U.K. Prime Minister David Cameron that Pfizer would keep at least 20 percent of the combined company’s research and development workers and substantial manufacturing facilities in the U.K. for at least five years to win support for the deal.
Read’s U.K. commitment may boost pressure on Pfizer to reduce U.S. costs to obtain the savings needed from the deal. Since buying Wyeth in 2009, Pfizer has cut $4.6 billion in research spending, announced plans to close at least seven labs and narrowed its scientific focus to six areas of medicine. During the past three years, the company lost patent protection on its best-selling drug Lipitor, divested its animal health business and reduced its workforce 25 percent to 77,700 employees by the end of 2013, according to filings.
The letter from the governors asked Read to detail potential job losses in the AstraZeneca deal and commit to continued investments in their states.
“Despite our requests, we have received no corresponding assurances about retaining jobs and research and development in our states,” Maryland Governor Martin O’Malley and Delaware Governor Jack Markell, both Democrats, wrote in a letter obtained by Bloomberg News. “Our concern is exacerbated by Pfizer’s history of closing U.S. research facilities, including sites in Michigan and Illinois, after closing on previous corporate transactions.”
Pfizer officials have spoken to the governors and understand their concerns, said Mackay Jimeson, a company spokesman. Bringing together the two companies would help create a leader in the pharmaceutical industry, he said.
“We believe a potential combination with AstraZeneca would build a stronger company by bringing together our assets, people and scientific expertise to create vibrant businesses with new potential growth and opportunities to meet patients’ needs,” Jimeson said in an e-mail.
In their letter, the governors included six questions, saying they wanted information to better understand how Pfizer’s potential merger would affect their states and the role they play in the pharmaceutical industry.
“We have 2,600 very good people in Delaware and 3,100 in Maryland,” Markell said by telephone. “My job is to do everything I can do to make sure they have continued career opportunities.”
AstraZeneca’s North America headquarters are located in Wilmington, Delaware. The company has a research center in Gaithersburg, Maryland, and a manufacturing facility in Newark, Delaware. About 22 percent of 51,500 people London-based AstraZeneca employs worldwide work in the U.S., according to the company’s website.
Also today, Democrats in the U.S. Senate said they may push legislation that would block companies from shifting their legal addresses overseas to reduce their tax bills. That effort runs counter to Read’s April 28 statement that he didn’t believe an acquisition allowing the New York-based company to move its legal resident to the U.K. would “create a conflict with the interest of the U.S. government.”
Senator Ron Wyden of Oregon, chairman of the Senate Finance Committee, said he is looking for a way to move quickly to prevent companies from “hollowing out” the tax base by moving overseas in name only, while keeping their operating headquarters in the U.S.
The response from the governors and lawmakers isn’t surprising, Uwe Reinhardt, a health economist at Princeton University in New Jersey, said in a telephone interview.
“These tax inversions, they are like a 2x4 into the face of Congress, saying pay attention to this,” Reinhardt said.
The governors decided to act after reading the past week about the assurances Read had provided to the British government, Markell said. Their list included questions about how many jobs would be cut or relocated from Maryland and Delaware as a result of any transaction, about future investment in the states and plans for splitting a merged company into different businesses.
Delaware and Maryland have “invested substantially” in AstraZeneca’s success and have a right to know what Pfizer’s intentions are, the governors wrote.
“It is also concerning that Pfizer is seeking to complete an acquisition involving jobs supporting thousands of families in our states in order to achieve tax advantages,” they wrote. “We while we understand your desire to operate efficiently, relocating your corporate and tax residence outside of the United States is not only detrimental to the United States, but potentially comes at a direct cost to our states and our constituents.”
Maryland and Delaware have lower unemployment rates than the rest of the nation, and rank in the top third of Bloomberg’s measure of economic health. In March, when U.S. unemployment was 6.7 percent, the jobless rate was 5.9 percent in Delaware and 5.6 percent in Maryland, according to the U.S. Labor Department.
The governors, who didn’t discuss the letter or operations with officials at AstraZeneca, asked Pfizer to respond promptly to their request.
Markell said he received a polite phone call from a senior leader at Pfizer, who said the company would keep the governor informed of the company’s progress with the acquisition.
“Keeping us informed is very different from the kind of jobs they have committed to in the U.K.,” Markell said.
(An earlier version of this story corrected the spelling of AstraZeneca.)
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