After a months-long courtship of the smaller U.K. company, Pfizer came back with a £53.50 per share bid on Friday, before raising it again to £55 per share late Sunday night.
However, the AstraZeneca board has said it would need an offer of closer to £59 per share to come to the table with the U.S. giant.
Shares in AstraZeneca dropped by 13 percent in early Monday morning trading following the announcement that it had rejected Pfizer's revised offer.
The latest Pfizer bid is around 45 percent cash to 55 percent shares in the merged company - a substantial hike in the 33 percent cash offered earlier in the month. Pfizer needs to keep AstraZeneca worth around 20 percent of the combined company to get the "tax inversion" which was one of the key drivers behind the deal.
The most recent offer would give AstraZeneca shareholders 26 percent of the merged company, indicating that there is a small window for a higher cash component.
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There is still a small chance the deal could go ahead, if AstraZeneca management decided to change their stance and engage with Pfizer. This would take a substantial shareholder rebellion in the week remaining before May 26, the deadline for Pfizer to make a "full and final offer" under U.K. takeover law (as opposed to the "final proposal" which has been made.
Ian Read, chief executive of Pfizer, expressed his frustration with AstraZeneca's management.