Pfizer's £63 billion ($106 billion) takeover approach for AstraZeneca was facing mounting political scrutiny on two fronts on Friday as senior U.S. politicians joined their U.K. counterparts in criticising the proposed deal.
As congressmen and state governors raised concern over a potential threat to U.S. jobs, a prominent senator threatened retroactive action to close the "loophole" that will allow Pfizer to shift its tax domicile to the U.K. and escape higher U.S. rates if the deal goes ahead.
"I don't approach retroactivity in legislation lightly, but corporations must understand that they won't profit from abandoning the U.S.," said Ron Wyden, Democratic chairman of the Senate finance committee.
The rising U.S. scrutiny came as Ian Read, Pfizer's chairman and chief executive, prepared to travel to London to face questions from U.K. lawmakers over how the proposed deal would affect U.K. science. AstraZeneca has so far resisted Pfizer's
Nick Clegg, Britain's deputy prime minister, said that the U.S. company could risk access to billions of pounds of U.K. public funding for science unless it made "binding and credible" commitments in its proposed £50-a-share offer for AstraZeneca.
Speaking to the Financial Times, Mr Clegg said that ministers had "meaningful leverage, which we are aggressively deploying", as talks between the U.K. government and Pfizer enter a crucial stage ahead of the May 26 deadline by which the U.S. company must table a formal bid or walk away.
Analysts cautioned that U.S. tax legislation was unlikely to come soon enough to stop the U.S. company's potential takeover of the U.K. group because there was no sign of the Republican backing that would be needed to make it law.
But the intervention by Mr Wyden and by Carl Levin, another senior Democratic senator, showed that the proposed deal was moving up Capitol Hill's agenda. The White House vowed action earlier this year to curb the practice of multinational companies moving offshore for tax reasons and the U.S. drugmaker's proposal has added momentum to Democratic efforts to tackle the issue.
On another front, John Delaney, a Democratic congressman from a Maryland district that includes Medimmune, an AstraZeneca subsidiary with 3,000 employees in the area, said that he was "very concerned" about potential job losses resulting from the Pfizer bid.
"If they are cutting deals in the U.K. that force their hand in the U.S., that would make me nervous," he told the FT. Mr Delaney urged Pfizer to offer "assurances" that Medimmune would remain "a vital part" of the company's future.
Mr Delaney said that it was important to clamp down on tax inversions specifically, but also broader measures to address "the flaws of our tax system that discourages the free flow of capital back to the U.S.".
Elsewhere, Tom Carper, a Democratic senator from Delaware, told the FT that the bid "raises a number of questions". Mr Carper said that he had "insufficient understanding" of how the deal would affect jobs in his home state but also "future medical discoveries that could benefit consumers around the world".
Mr Carper said that he also questions if the bid would be happening "if it weren't for the outdated corporate tax structure that unfortunately incentivises companies to harbour money and relocate jobs overseas". "We can't allow this to become a trend," Mr Carper said.
Mr Clegg said that the U.K. government would use only legal steps to try to block the merger – by applying to Brussels to extend the public interest test – "in extremis"; instead it was focused on using other negotiating tools.
One top 10 Pfizer shareholder said that he believed the company could offer additional concessions without compromising the commercial logic of the deal, citing previous big pharma mergers.
"I have always been amazed by the leverage that can be brought to cutting costs," the shareholder said. "We are talking about what would be the largest pharma company in the world, so there are all kinds of ways to appease politicians and still make the savings."
Pfizer says that it could reduce its average tax rate from more than 27 percent to less than 21 percent by shifting to a U.K. domicile, which would spare it from hefty U.S. taxation of profits repatriated from overseas.
AstraZeneca has highlighted the risk of a U.S. political backlash against the tax plan as one of its reasons for resisting last week's offer from Pfizer.
Pfizer has promised to keep at least 20 percent of the two companies' combined research and development workforce in the U.K. after a merger, but this has raised concern in the U.S. that American jobs could be lost to protect those in Britain.
Martin O'Malley, governor of Maryland, and Jack Markell, governor of Delaware, wrote to Mr Read on Thursday seeking assurances over the 5,700 people employed by AstraZeneca in their two states. They said that they would pursue their concerns with the White House and with the U.S. Congress.
Pfizer said: "Pfizer has spoken with the governors and we understand and appreciate their concerns. We have great respect for AstraZeneca and its rich heritage. We believe this potential combination presents an excellent opportunity to create a leading company in our global industry."