AstraZeneca rebuffs Pfizer's revised 63-billion pound offer as "inadequate"

AstraZeneca on Friday rejected Pfizer's revised proposal to acquire the company for 50 pounds per share ($84.47), saying it was "inadequate." Pfizer had earlier submitted a new proposal to buy AstraZeneca, with the offer including 1.845 shares in the combined company and 15.98 pounds ($27.00) in cash, valuing the UK drugmaker at 63 billion pounds ($106.5 billion).

Earlier this week, Pfizer confirmed that it was weighing its options regarding a possible merger with AstraZeneca having contacted the company twice about such a proposal, most recently last month. Pfizer's first proposal made in January represented 46.61 pounds ($76.62) per AstraZeneca share and a premium of approximately 30 percent to the UK company's closing share price on January 3, valuing the transaction at around 58.8 billion pounds ($99 billion). AstraZeneca, which rejected the first offer, saying it "very significantly undervalued" the company, noted that the initial proposal was made up of 30 percent cash and 70 percent of Pfizer shares.

In response to the latest offer, AstraZeneca said it "substantially" undervalues the company and is "not a basis on which to engage with Pfizer." The drugmaker added that "the large proportion of the consideration payable in Pfizer shares and the tax-driven inversion structure remain unchanged." AstraZeneca chairman Leif Johansson said "we are showing strong momentum as an independent company, in particular with our exciting, rapidly progressing pipeline." Johansson noted that "Pfizer’s proposal would dramatically dilute AstraZeneca shareholders’ exposure to our unique pipeline and would create risks around its delivery. As such, the board has no hesitation in rejecting the proposal."

According to Pfizer, the new offer was made "having consulted with major shareholders" in AstraZeneca. The US drugmaker added that it hoped "that the increased proposal will provide the basis for AstraZeneca to engage with Pfizer and enter into discussions relating to a possible combination of the two companies." Pfizer noted that the new offer represents a premium of around 7 percent to its initial proposal and a premium of approximately 39 percent to AstraZeneca's closing share price on January 3.

Pfizer CEO Ian Read remarked "we have seen significant positive market reaction to the announcement we made on April 28, including from the shareholders of both our companies." He added "we believe our proposal is responsive to the views of AstraZeneca shareholders and provides a sound basis upon which to arrive at recommendable terms for the combination of our two companies." Pfizer has indicated that it wants to enter negotiations with AstraZeneca rather than launching an offer direct to shareholders, although it has not ruled out a hostile bid if its advances continue to be resisted.

Deutsche Bank analyst Mark Clark, who earlier suggested that Pfizer's latest proposal would be sufficient for AstraZeneca to enter into discussions, said "we expect Pfizer ultimately to have to sweeten its offer based on discussions we have had with investors, many citing a price within the 52-55 pounds range and some above this." Analysts at UBS said the "modest increase" from Pfizer "serves as a starting point for negotiations with the AstraZeneca board," although they noted that it was still not enough to reflect the progress shown in the UK company’s pipeline this year.

Panmure Gordon analyst Sav Neophytou, who noted that Pfizer usually succeeds in the end, remarked that "the science bit is clear. The maths adds up to 50 pounds per share. We believe investors should wait for the 'art' bit of M&A – which should push the offer up towards 55 pounds." Meanwhile, analysts at Barclays said the cash proportion of a new bid could be a point of negotiation, noting that any offer up to 56 pounds a share could still boost Pfizer's earnings.

Pfizer also disclosed a letter sent to UK Prime Minister David Cameron in which the drugmaker outlined its commitment to the country and its life sciences sector. Read noted that as part of the potential transaction, Pfizer will complete the construction of the currently planned AstraZeneca Cambridge campus and employ a minimum of 20 percent of the combined company’s total R&D workforce in the UK. AstraZeneca currently employs more than 51 000 staff globally, with 6700 in the UK, while Pfizer has a worldwide workforce of over 70 000, with 2500 in the UK. In addition, the US drugmaker committed to base the combined company's European business headquarters and regulatory headquarters in the UK, whilst it "will actively look to locate manufacturing operations" in the country.

Commenting on a potential deal, Cameron said "action on any merger is a decision for both companies." He noted that "AstraZeneca has a fantastic role in the British economy," adding "we’ve sought and received robust assurances from Pfizer should the deal go ahead."

For related analysis, see ViewPoints: Where next for AstraZeneca? and ViewPoints: Pfizer insists any AstraZeneca acquisition would not trigger U-turn on split aspirations, but can it convince onlookers this deal is not about tax rate?

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