NEW YORK (The Deal) -- The U.K.'s AstraZeneca (AZN - Get Report) on Friday, May 2, took just a few hours to reject a sweetened takeover worth 63.1 billion pounds ($106.6 billion) from Pfizer (PFE - Get Report), which sought support from U.K. Prime Minister David Cameron in a public letter as its furiously lobbying efforts continued.
The London target said late Friday morning that Pfizer's improved 5,000 pence-per-share proposal, up from its initial 4,661 pence pitch, was still way too low and didn't address its concerns that the bid was stock-heavy. The terms "are not a basis on which to engage with Pfizer," it said.
"AstraZeneca continues to invest significantly in research, development and manufacturing in the U.K., Sweden and the U.S. We are showing strong momentum as an independent company, in particular with our exciting, rapidly progressing pipeline, which the board believes will deliver significant value for shareholders," added Chairman Leif Johannson in the statement. "Pfizer's proposal would dramatically dilute AstraZeneca shareholders' exposure to our unique pipeline and would create risks around its delivery. As such, the board has no hesitation in rejecting the Proposal."
The New York pharmaceuticals giant's takeover attempt has already raised hackles among U.K. politicians fearing the loss of one of the country's biggest drug companies and Pfizer Chairman and CEO Ian Read has launched a charm offensive to win the government over. If Pfizer succeeds with its bid, the takeover would be by far the largest foreign takeover of a U.K. company and has prompted a debate about Britain's "open" takeover regime, which emerged largely intact following the furore surrounding the-then Kraft Foods Inc.'s 11.9 billion pound takeover of Cadbury plc in February 2010.
"We recognize that our approach may create uncertainty for the U.K. government and scientific community given the strategic importance of life sciences to the Government's Industrial Strategy and the significance of the transaction. We would therefore like to assure the government of our long term commitment to the U.K. where Pfizer already employs a significant number of colleagues across research, commercial and administrative roles," Read wrote in the letter to Cameron.
Pfizer said it would continue work on a planned AstraZenecca research center in Cambridge, England should the deal succeed. It would also place 20% of its R&D staff in the U.K. and offer two AstraZenca board members seats on its executive panel.
Pfizer's latest indicative offer included 1.845 of its own shares and 1,598 pence in cash per AstraZeneca share. That's a 32% bonus to AstraZeneca's April 17 close, the day before speculation of a potential trans-Atlantic offer, and a 39% premium to the share's close Jan. 3 before Pfizer made its first indicative offer. The Viagra maker first approached AstraZeneca about a possible deal in November and has contacted the company several times.
AstraZeneca shares on Friday morning held resolutely below the sweetened offer price, at 4,804 pence, implying some skepticism that the seemingly unstoppable process will necessarily culminate in an offer.
Joh. Berenberg, Gossler & Co. KG analyst Alistair Campbell had earlier noted that 5,000 pence per share was the minimum Pfizer would have to pay "to win over management."
He has a hold rating on AstraZeneca stock and said the bonus was necessary even though AstraZeneca only has a book value of 4,000 pence per share.
The world's pharmaceutical companies are racing to beef up the activities they see as most profitable, making competition for certain treatment areas fierce. Pfizer is hoping to tap into AstraZeneca's oncology activities, though analysts have said the target's portfolio is too immature to aid Pfizer quickly. Basel's Novartis AG is also banking on cancer treatments, cranking up the pressure on Pfizer to complete an agreement. Last month Novartis agreed to an asset swap with GlaxoSmithKline plc, trading its vaccine business for Glaxo's oncology drugs. The duo will also combine their over-the-counter units into a joint venture and Indianapolis-based Eli Lilly and Co. will buy Novartis' veterinary activites.
Pfizer is taking financial advice from Bank of America Merrill Lynch's Fares Noujaim, Adrian Mee, Michael Findlay and Geoff Iles; a Guggenheim Securities LLC team of Alan Schwartz, Ken Springer and Jim Ferency; and JPMorgan Securities LLC's Steve Frank, Laurence Hollingworth, Mark Breuer and Christopher Dickinson.
Skadden, Arps, Slate, Meagher & Flom LLP's Michael Hatchard, Scott Hopkins, Adam Howard, Tim Sanders, Paul Schnell, Sean Doyle, Michael Chitwood, Grace Fu, Sally Thurston and Sharis Pozen are providing counsel alongside Clifford Chance LLP's Tony Reeves.
AstraZeneca is taking financial advice from Simon Robey and Simon Warshaw from their new Robey Warshaw advisory business as well as Evercore Partners Inc.'s Francois Maisonrouge, a Goldman Sachs Group Inc. team of Karen Cook and Phil Raper and Morgan Stanley's Colm Donlon and Andrew Foster.
AstraZeneca is turning to Freshfields Bruckhaus Deringer LLP's Julian Long and Davis Polk & Wardwell LLP's Paul Kingsley for counsel.