LONDON (The Deal) -- The U.K.'s AstraZeneca (AZN) on Monday, May 19, took the bold step of rejecting a thrice-sweetened 69.4 billion pound ($116.8 billion) takeover proposal from Pfizer (PFE), which had on Sunday ruled out hostile action and declared its latest offer final.
Pfizer's Sunday bid was worth 5,500 pence per share, at the top of external expectations of what the New York company may need to propose to win round its target. Breaking down into 1.747 shares plus 2,476 pence in cash, the offer lifted the cash component to 45% from 33% as the Viagra maker sought to address the U.K. target's criticism that a May 2 proposal was too stock-heavy.
But the London-based pharmaceuticals group said Pfizer's latest offer -- its fourth after Pfizer revealed it had made an hitherto undisclosed proposal on May 16 -- "undervalues the company and its attractive prospects." In an apparent attempt to preempt shareholder criticism about its unwillingness to entertain the American proposal, AstraZeneca also indicated it was aiming for a price of 5,885 pence.
"Pascal Soriot, (CFO) Marc Dunoyer and I had a lengthy discussion with Pfizer over the weekend about the proposal Pfizer made on Friday evening at a value of 53.50 pounds per share," said AstraZeneca Chairman Leif Johannson, referring to the previously undisclosed 5,350 pence proposal. "During this discussion, Pfizer said that it could consider only minor improvements in the financial terms of the Friday proposal. In response, we indicated, even assuming that other key aspects of any proposal had been satisfactory, that the price at which the board of AstraZeneca would be prepared to provide a recommendation would have to be more than 10% above the level contained in Pfizer's Friday proposal. The final proposal is a minor improvement which continues to fall short of the board's view of value and has been rejected."
Pfizer said its final May 18 proposal was 15% more than its May 2 proposal, and would put 26% of the combined company in the hands of AstraZeneca shareholders if the takeover happens. Pfizer said the proposal was 45% more than AstraZeneca's undisturbed share price as of April 17, before news of an unsuccessful January proposal emerged, and 53% more than the target's Jan. 3 share price.
In its earlier statement, Pfizer CEO Ian Read criticized its target's handling of the proposals and urged AstraZeneca shareholders to force its board to enter discussions.
"We have tried repeatedly to engage in a constructive process with AstraZeneca to explore a combination of our two companies. 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," said Pfizer CEO Ian Read in a statement. "We remain ready to engage in a meaningful dialogue but time for constructive engagement is running out. 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. We believe that our proposal represents compelling and full value for AstraZeneca and that other issues that have been raised by AstraZeneca do not represent material difficulties."
Public criticism from shareholders of AstraZeneca's handling of the bid has so far largely been via unattributed comments in the media and it remains unclear if they will rally to Read's call.
AstraZeneca shares by late morning in London were down almost 13% at 4,204 pence, reflecting increased doubt that the New York company will be able to push through a bid.
Pfizer has swallowed a string of multi-billion acquisition targets in little over a decade, including Warner-Lambert, Wyeth Inc. and Pharmacia Corp., of Sweden, and seeing off the world's No. 2 drugs maker would be a major feat for AstraZeneca CEO Soriot.
However, it would put the onus on the management team to deliver on their promises for pipeline drug candidates in sectors including oncology and to achieve an ambitious near-doubling of sales to $45 billion by 2023.
It also raises the likelihood of major disposals by Soriot, who reiterated last month he will consider "partnering options" for drugs outside the group's core therapeutic areas of respiratory; inflammatory and autoimmune; cardiovascular and metabolic; and oncology. Disposals are seen likely to occur in neuroscience and anti-infection.
If it happens, a Pfizer takeover of AstraZeneca would be the largest by far by a foreign bidder in the U.K. and has alarmed politicians worried about the erosion of British science.
The British government is currently considering whether it can extend its limited powers to intervene in mergers to gain a say in the bid.
Pfizer on May 2 in an open letter to Prime Minister David Cameron offered various concessions, including a commitment to employ 20% of its R&D staff in the U.K. for five years. He insists the commitments are legally binding.
The Takeover Panel has set Pfizer a May 26 deadline to announce a firm intention to make an offer or retreat.