It seems AstraZeneca is determined to rebuff Pfizer, choosing to say no to the latest bid without putting it to shareholders. However, I think it is highly likely that the US firm will come back, perhaps in six months’ time.
The important development here I think is that Astra rejected the deal without any recourse to its major shareholders; some of them have already come out this morning to say that they would be communicating their displeasure to the Astra board.
Pfizer must put a formal offer together by 26 May (the so-called ‘Put Up or Shut Up’ rule). Otherwise it must cease its pursuit of Astra for another six months. If it does step back then the Astra share price will continue to drop back from the bid highs around £48, providing an ideal opportunity for Pfizer to come back in due course and make another offer. AstraZeneca shareholders, having seen some of their paper profits evaporate, are likely to be more than happy to take the offer then.
It will not be an easy move to go hostile, and it was clearly not Pfizer’s preferred method, or else it would not have engaged in a lengthy courtship. The tax implications of such a deal will make Pfizer vulnerable to the attention of US lawmakers – MPs in London did not want to see a national champion disappear, and US congressmen will be equally unhappy about losing such an important firm.
Finally, there is the government element to consider. The Enterprise Act of 2002 contains a ‘public interest test’, and this could see Westminster take an interest in a takeover. The EU may also turn its attention to the deal, making life even harder for Pfizer.
Despite all this, the deal is still likely to take place. Pfizer needs Astra’s stable of drugs to help bolster its own portfolio, and give it breathing space to develop new drugs. I remain skeptical of big mergers, and suspect the deal will not be particularly beneficial for either Astra or Pfizer shareholders in the long term. Both companies face major issues that are not going to be solved by a merger. However, Pfizer appears to be throwing its all into the deal, making an hostile bid the most likely outcome in the end.