Pfizer renews bid to pop AstraZeneca in $100B potential merger

World’s largest drugmaker Pfizer Inc said on Monday it has made a fresh offer to take over British giant AstraZeneca in a potential merger worth around $100 billion. In the new bid, it has offered to create a new UK incorporated holding company as against the previous proposal which sought to create a US-based listed holding entity.

AstraZeneca’s board, which had nixed the previous proposal made early this year, has said in the absence of a concrete proposal it is not yet engaging into a discussion with Pfizer.

US-based Pfizer said it previously 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. The discussions were discontinued on January 14, 2014 and Pfizer then ceased to consider a possible transaction.

Pfizer contacted AstraZeneca again on April 26, 2014 seeking to renew discussions in order to develop a proposal that could be recommended by both companies to their shareholders. Pfizer said it is currently considering its options with respect to AstraZeneca.

It had previously offered a combination of cash and shares in the combined entity which represented an indicative value of £46.61 ($76.62) per AstraZeneca share, a premium of approximately 30 per cent to AstraZeneca’s closing share price on January 3, 2014, a day before the previous offer was made.

Pfizer did not disclose the indicative price it is looking at this time around but said AstraZeneca shareholders would become significant shareholders in the combined company. “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,” it said.

It needs to make a concrete offer on or before May 26.

Commenting on the possible transaction, Ian Read, chairman and CEO of Pfizer, said: “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. 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.”

Meanwhile, AstraZeneca board said the firm’s chairman has received a communication from Pfizer’s Read for a potential deal without any concrete terms and the board has concluded that in the absence of a specific and attractive proposal, it was not appropriate to engage in discussions with Pfizer.

It said Pfizer in its previous offer had offered £13.98 in cash (30 per cent of the deal value) and 1.758 Pfizer shares (70 per cent of the deal value) per AstraZeneca share, representing a value of £46.61 per AstraZeneca share. The proposal also involved a new US-listed and headquartered holding company.

AstraZeneca board concluded that the previous proposal very significantly undervalued AstraZeneca and its prospects and was in particular apprehensive of the large quantum of deal value embedded in stock portion of the transaction.

It also raised 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 wrote to Pfizer on January 12, 2014 rejecting the proposal and did not engage further with Pfizer. AstraZeneca was subsequently notified by Pfizer on January 15, 2014 that it was no longer actively considering making an offer for AstraZeneca. Pfizer has now made a fresh bid.

India implications

Meanwhile in India, AstraZeneca had been looking to delist its local arm but recently announced that it has deferred its plan for the time being.

“The company at its meeting held on April 15, 2014, deferred consideration of seeking approval of shareholders through postal ballot for the delisting of equity shares proposed by the promoters of the company,” it said in a stock exchange announcement without giving specific reasons.

The promoters of Bangalore-based AstraZeneca Pharma India Ltd, the arm of Sweden-based AstraZeneca, which owns over 75 per cent in the company, made a voluntarily open offer to delist the company in March 2014. The board of the Indian entity of the company approved the offer the same month.

Earlier, AstraZeneca had fixed a floor price of Rs 854.1 a unit for the proposed delisting offer. If Pfizer indeed goes ahead with a deal with AstraZeneca, it may need to come up with an open offer triggered by the global transaction.

AstraZeneca Pharma India scrip had shot up almost 50 per cent since late February and even as it climbed down over the last few weeks, it rose to Rs 1120.3 a share, up 4.2 per cent on BSE in a weak Mumbai market on Monday.

Given that Pfizer appears serious in its bid for the British drugmaker, the share price of AstraZeneca’s Indian arm could rise further in anticipation of a better offer in the future. Either ways, AstraZeneca, even if it revives the delisting offer soon, may find it difficult to reach the 90 per cent holding level, required to see through a delisting at the previously indicated floor price.

(Edited by Joby Puthuparampil Johnson)

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