AstraZeneca's board rejected a $106.5 billion bid from predator Pfizer just hours after it was received, arguing that it is too low.
The increase from an earlier offer of £46.61, tabled in January, to £50 a share on Friday, got AstraZeneca management to engage with Pfizer for the first time in nearly four months. The renewed bid also raises the cash component to around 32 percent from 30 percent earlier - although shareholders who spoke to CNBC had been hoping for a higher cash element.
Leif Johansson, chairman of AstraZeneca, said its board had "no hesitation" in rejecting the bid.
"Pfizer's proposal would dramatically dilute AstraZeneca shareholders' exposure to our unique pipeline and would create risks around its delivery," he warned.
Pfizer has also written to U.K. Prime Minister David Cameron, affirming its commitment to U.K. science and pledging to complete the construction of AstraZeneca's new flagship research and development facility in Cambridge.
A spokeswoman for AstraZeneca confirmed that the company had received Pfizer's bid. The company's board will meet to discuss Pfizer's bid and make a further statement "when appropriate," it said in a statement.
Investors should hold out for a third, higher bid from Pfizer, according to Savvas Neophytou, pharmaceuticals analyst at Panmure Gordon.
"We believe investors should wait for the 'art' bit of M&A - which should push the offer up towards £55," he wrote in a research note Friday.
Ian Read, Pfizer's U.K. born chief executive and chairman, was back in New York Friday after two days of intensive meetings with shareholders and politicians in the U.K.
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He spoke of "positive" reaction from shareholders in a statement.
"The consistent message we have heard reinforces our belief that there is a highly compelling strategic, business and financial rationale for combining our businesses, with significant benefits for shareholders and stakeholders of both companies," Read added.
"We believe our proposal is responsive to the views of AstraZeneca shareholders and provides a sound basis upon which to arrive at recommendable terms for the combination of our two companies."
Pfizer could tap the debt markets to get further cash to seal the acquisition.
Any potential tie-up would be the biggest foreign takeover of a U.K. company,and has already led to controversy – although AstraZeneca itself is the product of an international merger.
The government is understood to be unlikely to do anything to block the takeover, but wanted to secure some commitment towards investment in U.K. science.
Lord Sainsbury, a former science minister, spoke out in strong terms against the deal to the Financial Times, and said it would be a "devastating blow" for U.K. science.
U.K. politicians are particularly concerned as Pfizer made hefty cuts to its research and development jobs in the U.K. in 2011, and has a reputation for asset stripping in earlier transactions.
There have also been worries that Pfizer wants AstraZeneca to get around U.S. tax rules, rather than for its pipeline.
"Do we really want to be put in the same bracket as the Cayman Islands or Bermuda?" Chuka Umunna, shadow business secretary, of theU.K.'s opposition Labour Party, said to CNBC.
He also called for more stringent takeover rules and warned that AstraZeneca could "potentially used as apawn in a global tax planning game."
There are also concerns about Pfizer's relatively low research and development spend as a proportion of its income, compared to AstraZeneca, and worries that this might mean less investment in research and development in the U.K.
The deal will probably only face competition issues in China, as both companies have leading positions there, said Andrew Baum, pharmaceuticals analyst at Citigroup.
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There are several key factors driving the deal. One is AstraZeneca's pipeline of promising immuno-oncology, a new kind of cancer treatment, drugs. Another is the tax savings Pfizer could make.
The deal has highlighted how the U.K. has effectively made itself a tax haven for pharma through the patent box regulation, which was first introduced under the previous government and cuts income derived from patents, the lifeblood of the pharmaceutical industry, to just 10 percent.
AstraZeneca's share price was flat in London trading, reflecting the market's lukewarm attitude towards Pfizer's new approach.