Failed bid would leave Astra under pressure

May 27, 2014

By Chris Hughes
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The likely failure of U.S. drugmaker Pfizer’s $119 billion bid for AstraZeneca, which was due to lapse on May 26, would leave the frustrated buyer no worse off. But the target has much to prove. Some of its shareholders welcomed a possible takeover – and could again.

Pfizer’s management looks foolish for failing to clinch a deal with its UK rival when the two sides were close on price. When Astra’s board asked for an increase of around 10 percent, and reassurance on Pfizer’s ability to close the deal, the U.S. group responded with a take-it-or-leave it proposal that Astra could not accept. The price fell short and there was silence on the broader concerns. Ian Read, Pfizer’s chairman and chief executive, made a major miscalculation, or was poorly advised, or both.

Astra remains under pressure. The board did its job in deciding on a recommendable price for losing independence, and weighing the non-financial hurdles that any proposal had to cross. Yet its investors have not been wholly supportive. BlackRock, the biggest shareholder, backed the board’s dismissal of Pfizer on price, but is nudging Astra to talk again in the future. Other shareholders have publicly criticised the board’s rejection.

British takeover rules are supposed to prevent companies coming under siege. The rules were changed after U.S. food maker Kraft bought Cadbury in 2010, meaning a bidder now has only a month to decide whether to make a formal offer for its prey once its interest becomes public. That’s the theory. The reality is that Astra will still feel on the defensive given its shareholders are publicly split on the merits of a takeover.

An agreed deal is possible after three months. Pfizer can use its closing announcement to signal the benefits of a merger while implying it doesn’t need one. It now knows Astra’s bottom-line price, and some of the political hurdles a deal would have to overcome. Astra has a bit more time to justify its resistance to Pfizer too. But it must rely on more than a replay of Pfizer’s clumsy dealmaking tactics to stay independent.

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