Deals and IPOs

AstraZeneca set to reject Pfizer’s last £69 billion offer

Ed Hammond, Andrew Ward and Arash Massoudi
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AstraZeneca is preparing to reject a £69 billion ($117 billion) takeover bid by rival drugmaker Pfizer just hours after its U.S. suitor said it would walk away if its offer were rebuffed, putting into doubt a deal that would be the largest foreign takeover of a U.K. company.

The £55-per-share bid, upped from £50 two weeks ago, was viewed by key members of AstraZeneca's management team and its board of directors as falling short of properly valuing the company, according to people familiar with the matter.

The two companies discussed the deal over the weekend, including a near two-hour video call on Sunday afternoon. During those talks AstraZeneca executives also indicated they felt that Pfizer failed to give assurances over commitments to the U.K. group's research and development programs and future innovation investment in the U.K..

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AstraZeneca worked late into Sunday night considering the offer and is likely to make public its rejection as early as Monday morning, according to the people. No decision is certain, however, and the company could delay its response.

In a statement on Sunday evening, Pfizer said it would not make a hostile bid and would only proceed with the offer with the recommendation of the AstraZeneca board.

The U.S. drugmaker urged shareholders to put pressure on AstraZeneca's board to enter negotiations over the increased proposal of £55 a share, 45 per cent of it in cash.

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In outlining his company's new offer on Sunday, Ian Read, Pfizer chairman and chief executive, had expressed frustration with AstraZeneca's repeated refusal to enter talks and appeared braced for another rejection.

"We have tried repeatedly to engage in a constructive process with AstraZeneca to explore a combination of our two companies," he said. "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."

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The proposal marked an improvement from the £50-a-share indicative offer – 33 per cent of it in cash – rebuffed by AstraZeneca on May 2.

Pfizer revealed that it had made a further proposal of £53.50 a share – 40 per cent of it in cash – in a letter on Friday. AstraZeneca had dismissed this as a "substantial" undervaluation, according to the U.S. company.

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The latest proposal represents a 45 per cent premium to the share price on the last trading day before news of Pfizer's interest was first reported last month.

Pfizer has until May 26 to persuade AstraZeneca to enter talks, after which it would be barred under U.K. takeover rules from making another approach for six months.

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AstraZeneca has argued that Pfizer's previous proposals failed to fully recognise the value of its strengthening drugs pipeline – particularly a new generation of cancer medicines – or to compensate its shareholders adequately for the execution risks involved in such a big deal.

Pascal Soriot, AstraZeneca chief executive, has warned that the proposed deal could disrupt drug development and expose the merged group to political risks stemming from Pfizer's plan to move its tax domicile to the U.K. to escape higher U.S. rates.

Mr Read said he did not believe any of the issues raised by AstraZeneca represented "material difficulties".

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The proposed deal would be the biggest foreign takeover of a U.K. company and has roused political concern in Britain over its potential impact on the country's science base. AstraZeneca employs nearly 7,000 people in the U.K. and accounts for more than 2 per cent of exported goods.