Pfizer expected to be patient in face of AstraZeneca rejection

May 03 2014, 17:45 IST
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Pfizer Inc has already had its takeover overtures rebuffed three times by rival AstraZeneca Plc. Reuters Pfizer Inc has already had its takeover overtures rebuffed three times by rival AstraZeneca Plc. Reuters
SummaryInvestors and analysts say Pfizer needs to raise its offer as high as 52 to 55 pounds per share.

could help Pfizer on several fronts. It would bolster the pipeline of cancer drugs in development, allow it to re-domicile in Britain to take advantage of a significantly lower corporate tax rate there, and to use tens of billions of dollars it has overseas without having to pay high taxes to bring the cash back to the United States.

Both companies' shares rose with the original announcement, a sure sign investors liked the idea.

Pfizer has declined to comment on its strategy.

"We believe we will make an offer that is attractive to the shareholders of AstraZeneca," said Pfizer spokeswoman Joan Campion.

A hostile bid would be complicated by the fact that Pfizer needs the deal to have a substantial stock component in order to do the tax inversion and re-domicile in Britain. A straightforward cash offer would not accomplish that.

Marshall Gordon, healthcare analyst for ClearBridge Investments, which holds more than 20 million Pfizer shares and more than 729,000 AstraZeneca ADRs, said he believes the largest U.S. drugmaker does not want to go hostile, but might have painted itself into a corner.

"They need to get this deal done because they've gone public with it and the market has said they like the deal," Gordon said. "It's hard to back down now."

Gordon expects Pfizer to up the ante.

"To get Astra's management to the table and get a friendly agreement, Pfizer will have to offer more. There's probably some room to go."

Len Yaffe, portfolio manager for the healthcare fund StockDoc Partners - which has Pfizer holdings - believes Pfizer is more likely to walk away than take its case directly to AstraZeneca shareholders.

He sees the deal as far less essential to Pfizer than its 2000 purchase of Warner-Lambert, which was necessary for it to gain full control of the cholesterol-fighting drug Lipitor.

Pfizer took that bid directly to Warner-Lambert shareholders, ultimately buying the company for $90 billion.

"If they go hostile, I would be surprised, but Pfizer has to replenish the pipeline for their next phase of growth," Yaffe added.

In 2008, when Pfizer was frustrated in its attempts to reach a deal with rival Wyeth, it signaled its willingness to go hostile. The two sides reached a $68 billion agreement completed in 2009.

"When it became clear that Pfizer was willing to go hostile, (Wyeth) entered talks relatively quickly," recalled Seamus Fernandez, an analyst with Leerink Partners.

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