Pfizer’s Bid May Have Been Invited by U.K.’s Tax Policy
The U.K. may have opened the door for Pfizer Inc. (PFE)’s $98.7 billion bid for AstraZeneca Plc (AZN), the country’s second-biggest drugmaker, with a tax policy designed to draw research investment from abroad.
While the U.K. tightened takeover rules following Kraft Foods Inc.’s hostile bid for candy maker Cadbury Plc, the country has created incentives for drugmakers to increase research and capital investments. A program implemented last year enables companies to apply a lower corporate tax rate to profits from patents. That encouraged GlaxoSmithKline Plc, AstraZeneca’s larger British rival, to build its first U.K. factory in almost four decades.
While Britain would lose AstraZeneca if Pfizer pulls off the biggest-ever U.K. takeover, the nation would become the domicile of the world’s biggest pharmaceutical company and receive a $100 billion boost to its economy, Pfizer Chief Executive Officer Ian Read said on a conference call with reporters yesterday. A spokesman for U.K. Prime Minister David Cameron said there were rules in place governing acquisitions, and declined to comment further.
“If Pfizer incorporate in the U.K., you’re bringing in inward investment,” said Dan Mahony, who helps manage about $12 billion at Polar Capital Holdings Plc in London. “You could argue that government policy has driven that, in which case, they’re hardly going to try to nix the deal.”
Across the English Channel, French officials are weighing the potential acquisition of Alstom SA, the company that built the country’s power grid.
General Electric Co. Chief Executive Officer Jeffrey Immelt met with President Francois Hollande today to discuss protecting jobs and the independence of France’s nuclear industry, according to a person with knowledge of the discussions. France’s Industry Minister Arnaud Montebourg has said he’s working on an alternative to GE’s bid for Alstom and expressed support for Germany’s Siemens AG.
As in the U.S., the French government can intervene to protect companies deemed to be of national importance from being acquired. In 2005, it passed an anti-takeover decree amid speculation PepsiCo Inc. was planning a bid for dairy-products maker Danone.
In the U.K., mergers and acquisitions are largely dictated by rules implemented by the Takeover Panel in 2011 after unidentified bidders complicated Kraft’s takeover of Cadbury a year earlier. The changes included a 28-day deadline for disclosed bidders to craft formal offers and provide other details or walk away for six months. Pfizer has a May 26 deadline.
Under the U.K. Enterprise Act, ministers can only block a takeover on public-interest grounds if it affects national security, media plurality or the stability of the U.K. financial system. However, given the size of the deal, the European Commission would probably examine it, and if U.K. ministers oppose it, their best option would be to ask the commission to refer it back to the U.K. for a decision. At that point, Britain could use wider public-interest considerations to block it.
“My priority is to ensure that the objectives of this government’s life sciences industrial strategy are fulfilled,” Business Secretary Vince Cable said in an e-mailed statement late yesterday. “This means ensuring there are high-skilled jobs and long term investment in research and development in the U.K.”
Cable said he has been in touch with Pfizer’s CEO, and emphasized those priorities to him.
In addition to the U.K.’s patent program, the government offers generous research tax credits, Polar Capital’s Mahony said.
“The U.K. is quite an attractive place to do very high-end commercial research,” he said. “You’ve got a lot of human capital and talent that comes from a lot of different places, not just the U.K. If you keep the high-end jobs, that creates real value.”
The U.K.’s life science hub, concentrated in the “golden triangle” of Oxford, Cambridge and London, will also be boosted by the Francis Crick Institute, which will be Europe’s largest biomedical research center when it opens in London next year.
AstraZeneca plans to move its headquarters to Cambridge to capitalize on the scientific work being done there. An acquisition by Pfizer could threaten those plans as well as AstraZeneca’s research operations, said Ali Al-Bazergan, a London-based analyst at Datamonitor Healthcare, a research and consulting company.
“The deal sparks debate about the U.K.’s capability to remain an influential player in the life-sciences industry, primarily whether it can continue to maintain competitiveness, draw investment, and attract the best talent,” Al-Bazergan said.
Whether the deal would lead to job cuts is uncertain. While he wouldn’t commit to maintaining manufacturing jobs in the U.K., Pfizer’s Read said the combined company would benefit the U.K. economy.
“Talk is cheap,” said Scott Moeller, a former Deutsche Bank AG banker and a mergers and acquisitions expert at London’s Cass Business School.
When Pfizer bought Wyeth in 2009, the company said it planned to eliminate 19,000 positions, or 15 percent of the combined company’s workforce. In the U.K., it shut down a research center in Sandwich, England, where more than 2,000 employees were fired, a move Cameron called “depressing.”
Pfizer’s bid could still be derailed, as 15 percent of publicly disclosed acquisition attempts globally have failed over the last decade, Moeller said. The larger the deal, the lower the chances, with cross-border purchases being particularly difficult, he said.
Other bidders for AstraZeneca may also emerge. The company may seek a merger of equals with AbbVie Inc. or Amgen Inc. as a defense strategy, said Andrew Baum, a London-based analyst at Citigroup. Mahony said it’s unlikely Glaxo would buy AstraZeneca and combine the country’s two biggest drugmakers because both companies have significant respiratory divisions, which may raise antitrust concerns.
“It’s probably not ultimately government policy to have all our companies bought by outsiders so they can incorporate here, but maybe they’re not as averse to it as one might think,” Mahony said.
Photographer: Simon Dawson/Bloomberg
A box of Arthrotec 50 tablets, produced by Pfizer Inc., top, and a box of EMLA cream