Time often benefits bidders rather than targets - that’s why Kraft left its British rival Cadbury flailing for months after making a takeover approach. But the dynamics of Pfizer’s interest in AstraZeneca are unusual. Pfizer has good reason to seek a quick negotiated deal.
The bid battle for Cadbury in 2009 led to a reform of British takeover rules. As a result, after its declaration of interest in AstraZeneca on April 28, Pfizer has to make a formal offer within 28 days â€" or withdraw for six months unless AstraZeneca agrees otherwise. The two sides are in stalemate. Pfizer is courting AstraZeneca’s shareholders and the British government at the same time. AstraZeneca is waiting for a better offer than the current 46.61 pounds a share. It is seeking to persuade shareholders â€" who would retain a stake in the enlarged company â€" that a deal would be risky.
Pfizer has one good reason to go hostile if Astra does not budge. Walking away would expose it to the risk that the United States government changes its fiscal regime. Then Pfizer could no longer take advantage of the possibility to “invert†its tax domicile into Britain through the takeover.
Hostile deals are not unprecedented in the pharmaceutical industry. But they have costs. Typically, they require a 10 percent bump in price compared with 5 percent to 7 percent in negotiated deals, according to one top banker. Moreover, the bidder cannot review the target’s books and thus assess its true worth.
Britain’s Takeover Panel sets a 60-day limit for the acceptance of offers and allows an additional 21 days for the deal’s various conditions to be met. It grants an extension only if the target company wants one. If a hostile Pfizer did not secure all regulatory approvals in 81 days, the bid would lapse. Alternatively, waiting for approval first would give AstraZeneca more time to build its defense. With possible Chinese clearance needed, the process could drag. Pfizer will therefore want a friendly deal completed as quickly as possible.
AstraZeneca’s chief executive, Pascal Soriot, should not take too much comfort. His shareholders are expecting a deal. The company’s share price can be seen as pricing in a 75 percent chance of a deal happening at 52 pounds a share, adjusting for the time value of money. Investors seem to want Mr. Soriot to use his tactical advantage to extract a good price rather than preserve a standalone AstraZeneca stuck at its pre-deal value.
Christopher Hughes is Europe, Middle East and Africa editor and Neil Unmack is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
