AstraZeneca fight rumbles on

The £63bn takeover offer for Anglo-Swedish pharmaceutical group AstraZeneca by its US rival Pfizer is shaping up to be one of the most controversial takeover battles to involve a UK-based company.

British politicians fear that the enlarged Pfizer would cut research spending in the UK, endangering jobs and damaging Britain’s science base. On the other side of the Atlantic, there has been considerable criticism of Pfizer’s proposal to domicile the combined group in the UK for tax purposes.

In the past week, Pfizer’s chief executive appeared before MPs in an attempt to reassure them about his firm’s plans for investment and employment. Meanwhile, the firm is reported to be planning an increased hostile bid if it’s unable to win the support of AstraZeneca’s board.

What the commentators said

“Ignore, for the moment, the rights and wrongs of Pfizer’s attempt to buy AstraZeneca,” said Nils Pratley in The Guardian. “[My view is that] the US group is untrustworthy, its proposal rests on a dubious tax advantage and UK interests are threatened. In short, the deal stinks. But what will happen?”

Normally in these situations, the takeover will go ahead – as seen in Kraft’s acquisition of Cadbury in 2010. Dangle the prospect of “jam today” in front of shareholders and they will bite, regardless of whether it represents a good long-term outcome.

This reflects the “dysfunctional nature of the relationship” between company management, fund managers, the investors in the funds they run and the rest of society, agreed John Plender in the FT.

Executives are incentivised to boost short-term earnings through takeovers and cost-cutting, while fund managers are judged on short-term performance and leap at the chance to make a profit.

Yet there is ample evidence that takeovers are “a highly effective mechanism for uncreative destruction” rather than a boon to either investors or the economy: take Pfizer itself, which has spent $240bn on three big takeovers in 15 years, yet has a market cap today of just $185bn. “The only consistent winners are the investment bankers and other advisers.”

That may be true in general, but this particular deal “is a poor test case for almost any question about big corporate acquisitions”, said Edward Hadas on Breakingviews.com.

“The would-be US acquirer, the British target, the UK government and the whole pharmaceutical industry are all tainted. They are guilty, respectively, of a tax fixation, cutting research, empty words and inadequate drug discovery. So there is really no one with the moral authority to say whether this is a good deal.”

The best outcome would be for the UK and US to tackle the weakest part of the bid: Pfizer’s attempt to game the tax system. If the firm is still interested after that, it can come back with a fresh bid.

Merryn

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