Pfizer $117 Billion AstraZeneca Hunt Said Likely to Fail

Pfizer Inc.’s 69.4 billion-pound ($117 billion) pursuit of British drugmaker AstraZeneca Plc is likely to fail because U.K. takeover law prohibits the U.S. firm from improving its offer further after declaring it final, according to people familiar with the transaction.

AstraZeneca’s board rejected the offer valued at 55 pounds a share and has no plans to change that stance, said the people with knowledge of the situation. Pfizer can’t increase that amount under U.K. takeover rules for now, so the deal is at a stalemate, said the people, who asked not to be identified because the talks are private.

Pfizer said May 18 the “improved proposal is final and cannot be increased.” AstraZeneca turned it down yesterday, saying the bid failed to account for the value of its pipeline of experimental medicines and presented risks for shareholders. At least three investment firms said AstraZeneca was too quick to spurn the offer, with Schroder Investment Management Ltd. today urging the company to hold talks with Pfizer.

Pfizer is expected to announce that it won’t make a formal bid by May 26, which is the deadline for the U.S. company to make an official offer, one of the people said.

After that date, Pfizer will be blocked from another takeover push for six months, though it can approach the U.K. company privately after just three months to discuss ending the bid moratorium if the target company approves, the people said.

AstraZeneca Holders

Some analysts speculated that Pfizer may find a way to get the deal done. The U.S. firm may be able to raise its price and “our desk doesn’t think it’s over,” according to an e-mailed report from Mark Schoenebaum, an analyst with ISI Group LLC in New York. He cited the differences between a proposal and an offer and the influence of AstraZeneca shareholders and called Pfizer’s bid “effectively a hostile tender offer.”

Pfizer still hopes that AstraZeneca shareholders will put pressure on the U.K. drugmaker to enter discussions, one of the people familiar with the situation said.

Schroders, AstraZeneca’s 12th-biggest shareholder, said today it was disappointed with the quick rejection. Axa Investment Managers and Jupiter Asset Management Ltd. made similar comments yesterday.

Growth Potential

“As long-term shareholders, we are strong believers in AstraZeneca and the potential for its innovative growth pipeline,” Schroders said in an e-mailed statement. “However, given the increase in the offer we would encourage the AstraZeneca management to recommence their engagement with Pfizer, and subsequently their shareholders.”

Other investors are pleased that AstraZeneca rejected the final offer.

“An independent AstraZeneca will achieve far better returns for its shareholders than the combination of cash and Pfizer paper would have delivered,” said Neil Woodford, head of investment at Woodford Investment Management in London, in an e-mailed statement. “The long-term future for AstraZeneca looks very bright indeed.”

The only exemptions for Pfizer to increase its 55-pound bid, based on its announcement as well as Takeover Panel rules, would be if a third party makes a competitive offer; or, if AstraZeneca’s board changes its mind and recommends the current price, Pfizer reserves the right to subsequently increase the bid at any time, Pfizer said late yesterday.

Tougher Rules

Pfizer could add cash or shares to its offer in the event that its stock price or the dollar-pound exchange rate changes to decrease the value of the latest offer. Even then, the U.S. drugmaker could only restore the value to 55 pounds a share.

“Pfizer has also made statements in the final proposal announcement which reserve Pfizer’s right to introduce other forms of consideration, vary the mix of consideration and reduce its proposal in certain circumstances,” the company said.

Leif Johansson, chairman of AstraZeneca, said today in a separate statement that “Pfizer’s final proposal, which the board rejected, is not capable under the Takeover Panel rules of being increased or even suggested at being increased, privately or publicly, with or without the board’s approval or recommendation. This restriction that prevents further negotiation on value is a consequence of Pfizer’s actions.”

The Takeover Panel, the world’s oldest acquisition oversight body, introduced tougher rules in 2011, a year after the hostile acquisition of chocolate maker Cadbury Plc by Kraft Foods Group Inc. sent Cadbury shares on a roller-coaster ride. The regulations are meant to strengthen the hand of target companies and protect shareholders by discouraging so-called virtual bids that send stocks on a speculative tear.

Deal’s Fate

AstraZeneca’s rejection could end a 5-month pursuit that would have created the world’s biggest drugmaker. AstraZeneca shares yesterday plunged the most in about 12 years in London trading, and today climbed less than 1 percent to 43.08 pounds. Pfizer dropped less than 1 percent to $29.25 at the close in New York.

With a deal, Pfizer would transfer its headquarters to the U.K to gain a lower tax rate, add new cancer drugs to its pipeline and take advantage of cost reductions from overlapping operations.

Pfizer said the cash-and-stock offer would be its last under the current process, and it won’t go directly to AstraZeneca shareholders with a hostile bid. AstraZeneca said yesterday the price would have to be at least 58.85 pounds for the board to be able to recommend it to shareholders.

“Pfizer defined its last offer as final in a statement,” Esra Erkal-Paler, a spokeswoman for AstraZeneca, said yesterday in a telephone interview. “Our understanding of the U.K. takeover rules is that final means final.”

Joan Campion, a spokeswoman for Pfizer, said in an e-mailed statement yesterday that the fate of the deal is now in the hands of AstraZeneca’s shareholders.

“Our final proposal represents compelling and full value for AstraZeneca shareholders,” she said.

Before it's here, it's on the Bloomberg Terminal.