AstraZeneca Plc (AZN) rejected a sweetened 69.4 billion-pound ($117 billion) takeover offer from Pfizer Inc. (PFE) as too low, saying the bid fails to reflect the value of the U.K. drugmaker’s pipeline of experimental medicines. AstraZeneca shares plunged the most in almost 12 years.
The 55-pound-a-share proposal, which Pfizer said was final, would present risks for shareholders and harm science in the U.K., Sweden and the U.S., AstraZeneca said in a statement today. Executives told Pfizer over the weekend the price would have to be more than 58.85 pounds for AstraZeneca’s board to be able to recommend it to shareholders, the U.K. company said.
“The final proposal is a minor improvement which continues to fall short of the board’s view of value and has been rejected,” AstraZeneca said.
The rejection leaves the companies in a stalemate for now over a deal that would be the biggest acquisition of a U.K. company and create the world’s largest drugmaker by sales. Pfizer, which had said it didn’t expect AstraZeneca to accept the new cash-and-stock offer, said the proposal would be its last under the current process, and it won’t go directly to AstraZeneca shareholders with a hostile bid.
With a deal, Pfizer would transfer its headquarters to the U.K to gain a lower tax rate, add new cancer drugs to its pipeline and take advantage of cost cuts from company overlaps.
“We have tried repeatedly to engage in a constructive process with AstraZeneca,” Pfizer Chief Executive Officer Ian Read said in a statement yesterday.
“Following a conversation with AstraZeneca earlier today, we do not believe that the AstraZeneca board is currently prepared to recommend a deal at a reasonable price,” Read said. “We remain ready to engage in a meaningful dialogue but time for constructive engagement is running out.”
Pfizer’s initial bids led to Read’s grilling in front of U.K. lawmakers, who have expressed concern a takeover will gut AstraZeneca’s research operations in the U.K. and hurt British jobs. Pfizer has said it will complete a campus being built by AstraZeneca in Cambridge, England, and keep 20 percent of the London-based company’s research and development workers in that country for at least five years.
On May 2, New York-based Pfizer offered 50 pounds a share, following a previous bid made in January. AstraZeneca objected to Pfizer’s plan to pay only 32 percent of that price in cash, with the rest in shares. The new proposal contains 45 percent cash.
AstraZeneca fell 13 percent to 42.16 pounds at 8:07 a.m. The stock dropped as much as 14 percent, the biggest intraday decline since August 2002.
“It does sound like this is the last offer they will make if the company does not engage,” said Mark Schoenebaum, an analyst with ISI Group LLC in New York, in an e-mail yesterday. “My guess is that they might go up slightly if they enter friendly discussions.”
Pfizer’s CEO promised restraint. “We have said from the beginning that we will remain disciplined in the price we are willing to pay and we will not depart from that guiding principle,” Read said.
AstraZeneca’s board repeatedly rejected Pfizer’s advances, including a previously unreported offer of 53.50 pounds a share made on May 16, according to Pfizer’s statement.
Assuming other aspects of the offer were satisfactory, the price would need to be more than 10 percent above that 53.50 pound-proposal for the board to be able to recommend it, AstraZeneca said. Selling the company at 55 pounds a share would deprive shareholders of the full value of the experimental drugs that are under development, AstraZeneca said.
“Pfizer’s approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimization,” AstraZeneca Chairman Leif Johansson said in the statement. “From our first meeting in January to our latest discussion yesterday, and in the numerous phone calls in between, Pfizer has failed to make a compelling strategic, business or value case.
Pfizer’s offer expires on May 26, and the U.S. drugmaker said it was urging AstraZeneca shareholders to push the company’s board to start negotiating. If another company comes in with an offer, Pfizer could try again — otherwise it will be subject to a waiting period before it can attempt a new bid.
AstraZeneca stockholders would get 24.76 pounds in cash and 1.747 shares of the combined company for each share in AstraZeneca, Pfizer said. The new bid is 10 percent more than the May 2 proposal and is 53 percent above AstraZeneca’s closing price on Jan. 3, before Pfizer made its initial offer.
Pfizer has said it plans to keep its operational headquarters in New York and move its legal residence to the U.K.
An offer with more stock adds risk and long-term potential for AstraZeneca shareholders, while more cash gives them an immediate payout.
There’s a limit to how low Pfizer can drop the stock percentage of the offer and still enable the company to move its legal address to the U.K. for a lower tax rate than the U.S.’s 35 percent. For the lower rate 20 percent of the combined company’s shareholders must be from AstraZeneca’s base. The new offer would give Pfizer’s shareholders 74 percent of the combined company, and AstraZeneca’s 26 percent, Pfizer said.
AstraZeneca CEO Pascal Soriot has said the company’s experimental drugs for cancer and asthma will pay off, boosting sales to more than $45 billion a year by 2023. Revenue will drop through 2017 as some of the company’s best-selling drugs lose patent protection.