Pfizer Confirms Interest in Merging with AstraZenecaBy
Pfizer Inc. confirmed on April 28, 2014 of its interest in a possible merger transaction with AstraZeneca despite AstraZeneca’s assertion that it wishes to remain an independent company. Pfizer Chairman and CEO Ian Read outlined the potential advantages of a proposed combination and noted that Pfizer's previous non-binding proposal of interest made to the board of AstraZeneca on January 5, 2014 for a combination of cash and shares in the combined entity represented an indicative value of Â£46.61 ($76.62) per AstraZeneca share or approximately $100 billion. That proposal was rejected in January 2014, and the two companies have since not come to common ground for a possible deal.
Both companies outlined the recent history of their discussions. Pfizer said that it submitted a preliminary, non-binding indication of interest to the board of directors of AstraZeneca in January 2014 regarding a possible merger transaction. “After limited high-level discussions, AstraZeneca declined to pursue negotiations,” said Pfizer in a statement. “The discussions were discontinued on January 14, 2014 and Pfizer then ceased to consider a possible transaction. In light of recent market developments, Pfizer contacted AstraZeneca on April 26, 2014 seeking to renew discussions in order to develop a proposal that could be recommended by both companies to their shareholders. AstraZeneca again declined to engage. Pfizer is currently considering its options with respect to AstraZeneca,” said Pfizer in its statement.
Pfizer outlined its interest in combining with AstraZeneca. “The combination of Pfizer and AstraZeneca could further enhance the ability to create value for shareholders of both companies and bring an expanded portfolio of important treatments to patients,” said Pfizer Chairman and CEO Ian Read, in a statement in commenting on a possible transaction. “A potential combination with AstraZeneca aligns with Pfizer's current structure and fully supports its existing strategy to build world-class businesses. The combination would complement our two innovative businesses and our Global Established Pharmaceutical business, allowing us to maintain the flexibility for the potential future separation of our businesses whilst at the same time broadening our pipeline breadth and potential new product launches over coming years. We believe that a transaction would further strengthen our ability to generate strong and consistent cash flow, targeted for both investment in our business and return to shareholders while at the same time offering an efficient operating structure and the anticipated realization of attractive synergies.”
Pfizer said that it is confident a combination is capable of being consummated. The transaction, if consummated, is expected to result in the combination of the two companies under a new UK-incorporated holding company. As a global corporation, Pfizer would expect the combined company to have management in both the United States and the United Kingdom and to maintain head offices in New York and list its shares on the New York Stock Exchange. The making of any firm offer by Pfizer would be subject to the following pre-conditions (which may be waived in whole or in part by Pfizer): satisfactory completion of a customary due diligence review by Pfizer; unanimous recommendation by the directors of AstraZeneca to vote in favor of the combination; and the directors of AstraZeneca giving irrevocable undertakings to accept any offer in respect of their AstraZeneca shares
Pfizer said it has a track record of realizing operational synergies and delivering “meaningful value accretion” for shareholders in prior transactions of a similar type and scale. It says that the synergies would be achieved through the combination of the two companies' operations and that the combination would enable greater capital efficiency and a more efficient tax structure. In particular, the currently contemplated structure under the new UK-incorporated holding company would not subject AstraZeneca's non-US profits to US tax, noted Pfizer in its statement. The completion of a possible transaction is subject to the approval of Pfizer's shareholders and is expected to be a taxable event to Pfizer's shareholders. Pfizer said it reserves the right to introduce other forms of consideration and/or vary the mix of consideration and waive in whole or in part any of the pre-conditions in making an offer. Pfizer said it reserves the right to make an offer for AstraZeneca at any time for less than the equivalent of Â£46.61 ($76.62) for each AstraZeneca share under certain conditions.
AstraZeneca issued a statement on April 28, 2014 to outline it position of a proposed transaction and related timeline. In a statement, AstraZeneca said that on April 26, 2014, Pfizer Chairman and CEO Ian Read contacted AstraZeneca Chairman Leif Johansson for the first time since January 2014. “In this discussion, the Chairman of Pfizer did not make a specific proposal regarding an offer to acquire AstraZeneca, but nevertheless Pfizer requested that both companies issue a joint statement, prior to the market open on April 28, 2014, announcing that they had entered into discussions regarding a combination. The Board of AstraZeneca considered this request and concluded that, absent a specific and attractive proposal, it was not appropriate to engage in discussions with Pfizer,” said AstraZeneca in a statement.
AstraZeneca said it received initial contact from Read on behalf of Pfizer on November 25, 2013 to discuss a possible combination. The two companies subsequently met for exploratory meetings on January 5, 2014. At this meeting, Pfizer made a preliminary and conditional proposal regarding a possible offer for AstraZeneca. The proposal comprised Â£13.98 in cash (30%) and 1.758 Pfizer shares (70%) per AstraZeneca share, representing a value of Â£46.61 per AstraZeneca share, based on the closing price of Pfizer shares of $30.52 on January 3, 2014. The proposal also involved a new US listed and headquartered holding company.
“The Board of AstraZeneca concluded that the Proposal very significantly undervalued AstraZeneca and its prospects,” said AstraZeneca in the statement. “The Board highlighted its concerns regarding the proposed transaction structure, which contained a large proportion of the consideration in Pfizer shares. The Board of AstraZeneca also raised certain concerns regarding the execution risks associated with the proposed inversion structure, as Pfizer would redomicile to the UK for tax purposes.” As a result, AstraZeneca said it wrote to Pfizer on January 12, 2014 rejecting the proposal and did not engage further with Pfizer. AstraZeneca said it was subsequently notified by Pfizer on January 15, 2014 that it was no longer actively considering making an offer for AstraZeneca.
AstraZeneca said in its statement that it “remains confident in the ongoing execution of AstraZeneca's strategy as an independent company and that its successful delivery will create significant value for shareholders. This statement is being made by AstraZeneca without prior agreement or approval of Pfizer. There can be no certainty that an offer will be made nor as to the terms on which any offer might be made. Shareholders are strongly advised to take no action,” said AstraZeneca in the statement.
Under UK takeover rules, Pfizer has until May 26, 2014 to announce a firm offer for AstraZeneca or confirm that it would not be making an offer; an extension can be granted only with consent from AstraZeneca and the UK Takeover Panel.
Source: Pfizer and AstraZeneca