AstraZeneca fight rumbles on

The proposed takeover of AstraZeneca is proving to be one of the most controversial yet.

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

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.

Recommended

The top funds to invest in
Funds

The top funds to invest in

As market volatility and recessionary fears continue, here are the most popular funds, stocks and trusts investors are putting their money into accord…
2 Feb 2023
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves takes a look at the companies with the highest dividend yields in the UK’s blue-chip index
23 Jan 2023
The top ten dividend stocks in the FTSE 250
Share tips

The top ten dividend stocks in the FTSE 250

The average FTSE 250 dividend yield is around 4%, but many stocks yield much more. Rupert Hargreaves picks the best FTSE 250 stocks for income investo…
17 Jan 2023
Investing trends to watch out for in 2023: what analysts say
Investment strategy

Investing trends to watch out for in 2023: what analysts say

What are sensible strategies for high inflationary times? We ask analysts to find out.
22 Dec 2022

Most Popular

Best savings accounts – February 2023
Savings

Best savings accounts – February 2023

Interest rates on cash savings are making a comeback. We look at the best savings accounts on the market now
3 Feb 2023
The best one-year fixed savings accounts - February 2023
Savings

The best one-year fixed savings accounts - February 2023

Earn almost 5% on one-year fixed savings accounts.
3 Feb 2023
After slumping 42% last year, what's next for Scottish Mortgage?
Investment trusts

After slumping 42% last year, what's next for Scottish Mortgage?

After a spectacular couple of decades, the Scottish Mortgage Investment Trust fell by 42% last year. We take a look at the trust's performance and dis…
3 Feb 2023