Pfizer will need to pile on more pressure if it wants to buy AstraZeneca. Pfizer has confirmed that it made a $99 billion cash-and-stock approach in January for AstraZeneca, its British rival, and is now renewing its suit. AstraZeneca’s chief executive, Pascal Soriot, may ultimately struggle to resist a takeover, but he ought to be able to extract a better proposal.
The value being proposed by Pfizer looks ungenerous. Its initial approach was at 46.61 pounds a share, or about $78.33, denominated 70 percent in Pfizer stock with the remainder in cash. The premium equated to 30 percent above AstraZeneca’s market value in January - low for a major company in recovery mode.
The savings from a combination would comfortably exceed the $22 billion premium then being offered - synergies in Pfizer’s purchase of Pharmacia a decade ago would be worth as much as $50 billion. AstraZeneca shareholders would also balk at receiving shares in a company whose performance, and merger record, is mixed at best.
The proposed deal’s tax structuring is another weakness. This would require authorities in the United States to let Pfizer stay largely American, but shift its tax base across the Atlantic. This would be controversial. Every percentage point lower tax rate will add $200 million to Pfizer’s net income, Barclays estimates.
AstraZeneca has predictably already cited these issues in rebutting Pfizer. But as rejections go, the language is temperate. What is more, AstraZeneca’s hand is somewhat weakened by the revelation that it had fleeting discussions about a deal. Merger arbitrageurs will be switching into Astra stock ready to flip it to Pfizer.
Having gone public, Pfizer will want to see this through. It could come back with more value and more cash, provided it can keep within United States tax rules for inversions, which require 20 percent foreign ownership. Mr. Soriot could do with a white-knight bidder. But, like Cadbury when it faced unsolicited interest from Kraft in 2009, that does not look easy. Potential candidates for a rival deal include Sanofi, Amgen or Merck, although few may be willing to match Pfizer’s aggressive tax structuring, or take a chance on Astra’s restructuring with just a month before Pfizer’s likely bid.
Pfizer says its next bid will be based on AstraZeneca’s price on April 17. Applying a 30 percent premium to that would imply an offer of £49 a share. Citigroup argues that is only in line with AstraZeneca’s fair value, while Barclays estimates that tax benefits and synergies could justify Pfizer increasing its offer as high as £56. If Mr. Soriot cannot make Pfizer go away, he can make it pay.
Neil Unmack is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
