Pfizer Avoids Job-Cut Specifics in AstraZeneca Testimony
Pfizer Inc. (PFE) Chief Executive Officer Ian Read refused to be pinned down on his commitment to preserve jobs in the U.K. as skeptical lawmakers grilled him about the company’s unsolicited offer for AstraZeneca Plc. (AZN)
AstraZeneca CEO Pascal Soriot followed Read, telling the Business, Innovation and Skills Committee he couldn’t rule out accepting an offer from Pfizer. The U.S. company plans to sweeten the 60.4-billion-pound ($101.9 billion) bid for a second time, people with knowledge of the matter said. Pfizer may wait until after the hearings to offer more, they said.
Read faced members of Parliament who are concerned Pfizer will cut jobs and close facilities, which has been its pattern in previous takeovers. Pfizer reiterated its pledge to keep 20 percent of its global research and development workforce in the U.K. and maintain AstraZeneca’s factory in Macclesfield. The company would reduce employment after the acquisition, Read said, though when questioned he wouldn’t say if that means Pfizer could cut science jobs in the U.K.
“The commitment of 20 percent of a global company’s R&D is an unprecedented commitment,” said Read. “It’s a substantial commitment.”
U.K. politicians, led by Prime Minister David Cameron, have said they want New York-based Pfizer to do more to ensure it will protect British jobs and science. Business Secretary Vince Cable told the committee the government is considering legislation that would allow it to intervene in the transaction.
“If a bid is made, then because the national interest is involved, we would like to talk to both companies and receive assurances,” Cable said. “If assurances are not satisfactory, then there are legislative remedies.”
Cable said he would need to explore what the penalties might be if Pfizer breaks its promises.
Business committee Chairman Adrian Bailey, a member of the opposition Labour Party, opened the hearing by noting Pfizer has been called a “praying mantis” and a “shark that needs feeding.”
“What can you say to this committee to convince us that this is a leopard that has changed its spots?” Bailey said.
Members of the committee from both the governing Conservative Party and from Labour interrupted Read, accused him of being coached in advance and told him he was holding back information.
William Bain, a Labour member, pressed Read on whether the company would live up to its commitment to keep 20 percent of the R&D workforce in the U.K. for at least five years. “Why on Earth should we believe you?” Bain asked.
“I am a man of my word,” Read said. “Pfizer is a company of its word.”
Pfizer’s commitment to maintain employment also is binding under the law, Read said. The company pledged to follow through on London-based AstraZeneca’s plan to build a research hub in Cambridge, England, he said. Total R&D spending will be lower after the combination, he said. He refused to say how many jobs would be cut or where.
“Our company is extremely focused on making science productive,” Read said. “Pfizer is not alone in reducing employment in industry. AstraZeneca itself has reduced its U.K. workforce by 40 percent.”
Paul Nurse, president of the Royal Society, said Pfizer should make a 10-year commitment to the U.K., up from a proposed five years, and that the company should pledge to support collaborations with U.K. universities.
“Were this deal to go ahead with Pfizer providing genuine long-term investment in the U.K. science base, it could provide a bridge between U.S., U.K. and European pharmaceutical research and development,” Nurse wrote in a May 12 letter to Andrew Miller, chairman of the Science and Technology Committee. Read and Soriot will appear before that committee tomorrow.
AstraZeneca on May 2 rejected Pfizer’s latest proposal, saying the cash-and-stock offer undervalued the company and its prospects. Revenue will rise to $45 billion annually by 2023 from $25.7 billion last year, the company said. A buyout would be a distraction, and could jeopardize its ability to get its drugs to the market, according to Soriot.
Combining the companies would protect AstraZeneca from the loss of revenue from coming patent expirations and ensure it could afford to develop its drug pipeline, Pfizer said.
The new company would be more efficient, have a broader array of treatments and would ultimately benefit patients, it said. Pfizer also has said it would move its legal residence to the U.K., gaining a lower tax rate, while the company’s operational headquarters would remain in New York.
Pfizer reiterated its rationale for the deal in a statement today and urged for “constructive engagement” with AstraZeneca to craft an agreement.
“Pfizer believes there is compelling rationale for a combination and if AstraZeneca engages in conversations to provide Pfizer with a better understanding of its business and its prospects it may lead to a transaction that AstraZeneca can recommend,” the company said. AstraZeneca said the statement contained nothing new.
“We have the scale to succeed on our own,” Soriot told the committee today. “We have the scale, we have the people, we have the talent, we have the products, we are confident we can succeed.”
Soriot said Pfizer’s pledge to keep 20 percent of R&D jobs in the U.K. was hard to evaluate without knowing Pfizer’s current R&D workforce total or its plans for job cuts.
“It could be more, it could be the same or it could be much less than it is today,” he said. “It’s very hard to speculate on how many people that would mean for the United Kingdom.”
Pfizer made an initial proposal in January that valued AstraZeneca at 46.61 pounds a share, and increased the offer to 50 pounds a share on May 2, with 32 percent of the payment to be made in stock.
The value of that offer has declined to about 47.83 pounds, based on yesterday’s closing price for Pfizer. Pfizer is crafting a new offer that would increase the value modestly and give a higher proportion in cash, the people said.
Read, answering questions from the committee, wouldn’t be drawn into laying out Pfizer’s end game for the takeover. “We haven’t decided our final strategy,” he said. “It would be very remiss of me while buying another company to lay out my final strategy.”
Separately, Swedish Finance Minister Anders Borg said he has spoken to the U.K. government about his concerns that the deal is driven by taxes and may result in job cuts in the two countries. Sweden, home to AstraZeneca’s research site of Moelndal, hasn’t received any commitments from Pfizer on keeping jobs there, Borg said today in an interview.
Read also is dealing with the concerns of elected officials in the U.S. The Pfizer CEO told the governors of Maryland and Delaware in a letter yesterday it’s too soon to determine what effect an acquisition of AstraZeneca would have on jobs and manufacturing in their states. Maryland Governor Martin O’Malley and Delaware Governor Jack Markell wrote Read last week asking what assurances he could give them for the 5,700 AstraZeneca workers in their states.
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