From The Editor | May 19, 2014

AstraZeneca: "Pfizer's Final Proposal…Is Inadequate"

By Ed Miseta, Chief Editor, Clinical Leader

Miseta

You have to hand it to AstraZeneca for standing its ground and holding firm to its principles. In rejecting previous offers from Pfizer, the company insisted it was worth more. In rejecting the latest offer over the weekend, it is clear AstraZeneca believes its pipeline is being significantly undervalued.  

Pfizer’s final proposal was comprised of 45% cash (£24.76) and 55% stock (1.747 Pfizer shares) per AstraZeneca share. This represents a total value of £55.00 per AstraZeneca share based on the Pfizer closing price on May 16th. According to a statement released by the company over the weekend, the proposal undervalues the company and its prospects and was therefore rejected by the board.

In a statement released by AstraZeneca, Chairman Leif Johansson notes he and others board members held a lengthy discussion with Pfizer over the weekend. During that meeting, Pfizer indicated it could consider minor improvement in the financial terms of the proposal. Johansson stated that even if other key aspects of the proposal were deemed satisfactory, the financial value would have to be at least 10% over the current level.

“Pfizer’s approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimization,” said Johansson. “From our first meeting in January to our latest discussion yesterday, and in the numerous phone calls in between, Pfizer has failed to make a compelling strategic, business or value case. The Board is firm in its conviction as to the appropriate terms to recommend to shareholders.”

Johansson went on to note the innovation being performed at his company, as well as the value contained in the company’s pipeline, made the current offer unacceptable. These statements echoed comments made following the previous Pfizer offers. “We have rejected Pfizer’s final proposal because it is inadequate and would present significant risks for shareholders, while also having serious consequences for the company, our employees and the life-sciences sector in the UK, Sweden and the US,” he added.

In rejecting the latest proposal, the board of AstraZeneca offered the opportunity to Pfizer to clarify four aspects of the proposal that were not clearly described in Pfizer’s proposal letter. The four points that were of concern to the board are:

  • The business operating model and segmentation which would allow AstraZeneca to deliver on its research and development pipeline and prospects; and which would protect and preserve its culture of science and innovation, especially given the likelihood of material cost savings and research and development reductions;
  • The details of Pfizer’s plans for cost savings, including around research and development, pipeline delivery and employment;
  • Transaction execution risks, in particular Pfizer’s proposed tax inversion and regulatory clearances; and
  • Pfizer’s plans for protecting the certainty of delivery of the value of any offer at closing.

Although this was deemed Pfizer’s final offer, I remain skeptical that we have seen the last of this potential merger. Like Brett Favre’s retirement and The Rolling Stones final tour, I remain confident that there is more to come. Stay tuned.