On Sunday, Pfizer upped its bid for AstraZeneca to a fourth and "final" offer of £55 a share, or about $119 billion. But the U.K. pharma giant quickly slapped it down, and AstraZeneca Chairman Leif Johansson condemned the tax inversion scheme at the heart of the proposal--along with the cost-cutting that would have followed the megamerger--and confidently chose to gamble the company's future on its new and expanded pipeline.
AstraZeneca's swelled shares tumbled 11% on the news.
Pfizer's Ian Read clearly asserted that his final bid would be AstraZeneca's last chance to negotiate a merger. The £55 bid hit the "magic number" that bankers close to these talks had said would force the reluctant U.K. pharma giant to the table. But Pfizer ($PFE) also discarded an ace in the hole, swearing off any threat of a hostile takeover and leaving the ball in AstraZeneca's ($AZN) court.
Now that AstraZeneca has slapped that ball back, Pfizer may have little choice but to find a new game--unless some big shareholders force a rethink in the next few days. Analysts scratching their heads over an unexpected attempt to revive the pharma megamerger after repeated failures will be left wondering what Pfizer could pull out of its sleeve now.
Johansson had already nixed Pfizer's final offer before it hit the table. In AstraZeneca's release, the chairman explained that Pfizer would have needed to offer at least £59 a share to get to the bargaining table. And the board offered to meet with Pfizer execs, ready to explain their position and ask in turn how Pfizer intended to operate the company once it had completed a deal, where it would cut and how it could deliver on the combined company's pipeline prospects.
"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," Johansson said in a statement. "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."
Pfizer, though, felt that the number it left on the table could do most of the talking.
"This is the fourth proposal Pfizer has made and Pfizer believes that this final proposal provides a clear basis for AstraZeneca to extend the period for making a firm offer under the Code and to meaningfully engage with Pfizer," Pfizer said in a statement Sunday evening. The third offer--£53.50--came two days ago, Pfizer added. But AstraZeneca's board had brushed it off as another lowball bid that failed to value the company at its own, much higher, rate.
Over the weekend, various media groups from Reuters to The Telegraph were sending out signals from banking insiders that a £55 offer would successfully force AstraZeneca's board to the bargaining table. But in his statement Sunday, Read sounded distinctly discouraged by AstraZeneca's persistent stonewalling.Pfizer CEO Ian Read
"Following a conversation with AstraZeneca earlier today, we do not believe that the AstraZeneca board is currently prepared to recommend a deal at a reasonable price," noted Read. "We remain ready to engage in a meaningful dialogue but time for constructive engagement is running out."
Under British M&A rules, Pfizer and AstraZeneca have until noon on Monday, May 26 to agree to talk about a deal. If Pfizer hasn't managed to change AstraZeneca's decision by the deadline, it will have to wait on the sidelines for 6 months before trying to restart talks.
Pfizer has been characterizing this as a research-driven megamerger, trying to relegate the tax advantages in the deal to the sidelines. But after a series of major acquisitions, including Pharmacia and Wyeth, Pfizer has established a clear track record of carving billions out of its research organizations--and laying off thousands--following its expansion. That track record clearly undermined Pfizer's repeated assurances to members of Parliament.
Read had countered his critics by guaranteeing that 20% of the combined company's research staff will remain in the U.K., but that left plenty of other jobs to cut in Sweden, where AstraZeneca still has one major scientific hub, and an extensive U.S. R&D organization in Connecticut, Boston and La Jolla.
The drama may not be over yet. ISI's Mark Schoenebaum notes that his group still thinks that a deal could be worked out, provided AstraZeneca's shareholders force a reckoning. "Our desk believes it's now in AZN shareholders' hands and that this is effectively a "hostile" tender offer," Schoenebaum noted this morning. "Thus, our desk doesn't think it's over."
If it is over, Pfizer is likely to face some serious scrutiny in coming months as analysts ponder the fate of a pharma giant with a weak pipeline and sinking revenue numbers. And some analysts believe that just sitting uncomfortably is no longer an option.
"PFE is saying it will not pursue another mega-merger (according to press reports) if it cannot acquire AZN, but this still begs the question of what else PFE might do instead, especially if its share price sags," says Bernstein's Tim Anderson. "Could the company do a massive share buyback unlike any that it has done before? Or, could it come out and say that it can split itself up earlier than current guidance of 2017? Or, could it acquire a mid-sized biopharmaceutical target (or perhaps, collection of targets) instead? It is difficult to know. If PFE does nothing, shareholders could be disappointed."
For AstraZeneca, which is staring at a long period of steadily falling revenue numbers, waving gooodbye to Pfizer will make everything all about delivering on its drug prospects, especially a group of promising cancer drugs which have recently earned some careful attention. That game wil take years to play out, and every win and loss will now by judged against the extraordinarily high bar AstraZeneca set for itself during the takeover attempt.