Pfizer Ponders Next Move After AstraZeneca Bid Rejection
The biggest proposed deal in drug industry history is dead. Or, dead for now.
Pfizer Inc. (PFE), the largest U.S. drugmaker, yesterday abandoned its effort to buy AstraZeneca Plc (AZN) for 69.4 billion pounds ($117 billion), saying the public bid rejected by its London-based competitor represented “full value.” AstraZeneca said it welcomed “the opportunity to continue building on the momentum we have already demonstrated.”
Under U.K. takeover rules, Pfizer had until 5 p.m. London time yesterday to make a firm offer. The regulations now require a cooling-off period of at least three months before talks can restart, giving both drugmakers time to decide what happens next. Pfizer hopes AstraZeneca’s investors will push the company’s board to come to the table, while AstraZeneca faces pressure to deliver on its promises of a productive roster of experimental medicines.
“There is quite a decent chance actually that there will be a deal later this year, most likely I would say after three months,” Erik Hultgard, an analyst with Nordea Bank AB in Stockholm, said in a telephone interview. “There was quite a small spread between what the board said they could accept and what Pfizer actually wanted to pay. There are likely shareholders on both sides that want this to happen.”
Pfizer rose less than 1 percent to $29.61 at 4 p.m. in New York. AstraZeneca fell 1.8 percent to 42.52 pounds in London.
Pfizer has declined to say if it will try again to buy AstraZeneca after the U.K. company’s board rejected its last offer of 55 pounds a share. For talks to begin anew after three months, AstraZeneca must invite the discussion or Pfizer will have to wait six months to make a new bid.
“We continue to believe that our final proposal was compelling and represented full value for AstraZeneca based on the information that was available to us,” Pfizer Chief Executive Officer Ian Read said in the statement. “As we said from the start, the pursuit of this transaction was a potential enhancement to our existing strategy.”
Pfizer’s offer was as high as the company will go, which calls into question whether it will make another bid for AstraZeneca later this year, a person with knowledge of the matter said. In the meantime, Pfizer will look at other strategic options, this person said, asking not to be identified discussing private information.
“As always, we will continue to look at and evaluate any other potential transaction that creates value for our shareholders and benefits patients,” Joan Campion, a Pfizer spokeswoman, said in an e-mailed response to questions.
In an interview with Britain’s Telegraph newspaper, Read said Pfizer walked away with “no regrets.” Most shareholders the U.S. company spoke with had indicated that a bid of more than 50 pounds a share would be well received, he told the Telegraph. AstraZeneca Chairman Leif Johansson and CEO Pascal Soriot were “always very courteous and listened,” though they gave Pfizer executives the impression that they wanted the U.K. drugmaker to remain independent.
“We arrived at the conclusion that the AstraZeneca board would not enter negotiations with us at any reasonable price so our only strategy left was to” make the final offer public, Read said in the interview.
Pfizer hasn’t been successful with its research and development recently and is “more desperate” for a deal, Hultgard said.
“Ian Read has invested a lot of his credibility, and he’s invested a lot of prestige in this process,” Hultgard said. “It will be a big blow for him if it doesn’t happen.”
Both companies raised expectations during a very public debate over the proposed deal. AstraZeneca has predicted sales of $45 billion by 2023, a 75 percent increase from last year. The company has bet heavily on a new class of cancer drugs that use the body’s immune system to attack tumors, experimental drugs Pfizer has said it covets.
“We have attractive growth prospects and a rapidly progressing pipeline,” Johansson said in a statement yesterday after Pfizer’s announcement. “In the coming months, we anticipate positive news flow across our core therapeutic areas, which underpins our confidence in the long-term prospects of the business.”
For its part, Pfizer must entice AstraZeneca back to the bargaining table or face the prospect of seeking deals that offer slower growth. There are few large targets that would, like AstraZeneca, let Pfizer cut its tax rate by moving its legal address abroad, find cost savings and get a basket of promising new drugs.
Read may also decide to drop the big deal and return to a path to split the company. He has divided Pfizer into at least two units internally, with the idea they may be spun off on their own, potentially giving investors a choice between a business stocked with brand-name drugs and a second with older products.
The future of the deal may lie with AstraZeneca’s biggest shareholders. BlackRock Inc., which owns 8 percent of AstraZeneca stock and is its largest holder, is among those that have encouraged discussions between the companies.
“The spread is too small for it simply to die out, especially as some of the shareholders at Astra have told the board that they want at least negotiations or talks to continue after a three-month period,” Hultgard said.