Pfizer CEO Ian Read
A combative parliamentary hearing on the proposed takeover of AstraZeneca (AZ) saw Pfizer chief executive Ian Read questioned closely yesterday on the legal basis of its commitments to the UK.
Members of Parliament repeatedly asked whether Pfizer’s commitments – which include maintaining 20 per cent of its R&D workforce in the UK, completion of the Cambridge headquarters and R&D campus and a substantial manufacturing presence in Macclesfield – were in any way binding and enforceable.
Despite Read’s exhortations that the panel should accept his word as his bond, the panel seemed unconvinced and were frustrated by the reluctance of Pfizer commit to any hard numbers on employment and investment levels before a deal had gone through.
A particular sticking point was resistance by Pfizer to extend any assurances beyond five years, and the rider that those assurances may be adjusted “consistent with our fiduciary duties”.
Committee chairman Adrian Bailey asked Read about its track record on M&A, pointing out that the company has spent $240bn and is now worth $185bn, and so seems to have “lost a lot of value” as a result of its acquisitive strategy.
Read responded by saying that one of the main drivers behind the proposal was an increase in efficiency to enable both companies to survive over the long-term in an increasingly challenging and competitive operating environment.
Earlier in the day, union leaders expressed their own concerns about the proposal, with GMB’s Allan Black asking for a “copper-bottomed” guarantee on jobs. Meanwhile, Tony Burke from Unite said Pfizer had not yet responded to its own overtures for discussion, saying this was reminiscent of what happened when the firm shut down its R&D facilities in Sandwich.
“We’ve made these commitments and are going to keep them,” insisted Read, saying that the commitment to keep 20 per cent of R&D employees in the UK was “unprecedented” in the industry.
Soriot says main issue is disruption
Giving the other side of the story, AZ’s CEO Pascal Soriot said on several occasions that a takeover would lead to “distraction and disruption” and have a deleterious impact on R&D and AZ’s efforts to deliver new medicines to patients.
The distraction claim does rather overlook the fact that AZ itself was created through a mega-merger in 1999, although Soriot stressed that latterly the nature of M&A has changed, with a move away from commercial-led megamergers and a shift towards small- and mid-scale, science-led acquisitions such as its recent purchase of Spirogen.
When asked about the potential impact on employment of a takeover, he said: “It’s logical to assume that a merger of this magnitude would come with substantial cost-savings, and cost-savings don’t come without job losses.”
He also indicated to the panel that AZ’s rejection of the bid was not a ploy to drive up the value of the deal, and stressed investment assurances from AZ were solid, referencing specifically the investment in Cambridge which Soriot said in many ways would be his “legacy” as AZ CEO.
AZ’s commitment to the UK spans “decades”, he said, adding that 30 per cent of its R&D workforce is currently based in the UK. Meanwhile, the company recently spent $120m on a new facility in Macclesfield to produce a cancer drug, while the Alderley Park biocluster which has just been granted another £5m to help fund spin-out companies.
Soriot also pointed to AZ’s importance to the UK economy, noting that the company paid £1.5bn in taxes – plus £1bn in employment taxes – over the last five years, though a few eyebrows were raised among the committee when he revealed AZ had paid no tax last year as it made a loss on high R&D costs.
Pfizer chief financial officer Frank D’Amelio had hinted at the promise of greater tax revenues in front of the panel, telling MPs that over the last three years the company has paid £400m in the UK and expects its corporation tax bill in the UK to rise on the back of profits from a larger, combined operation.
But Soriot argued however that the plan to domicile the combined company in the UK and reduce its tax burden represented an “execution risk” to any deal, as the proposed tax inversion structure could generate “substantial controversy” on the other side of the Atlantic with politicians in the US already starting to voice concerns.
He also revealed that 70 per cent of AZ’s current pipeline was discovered or influenced by the UK so would probably be eligible for patent box benefits, while the company maintains 200 collaborations with UK-based academic and commercial organisations.
Cable: Government ‘may consider intervention’
The big question is whether UK politicians actually have any powers to block a deal if it were deemed undesirable.
The UK government’s ability to monitor and intervene in M&A was reinforced after 2006 after the takeover panel won the ability to refer cases to the High Court, but no examples were forthcoming as to where this had be used and later Business Secretary Vince Cable indicated there was no precedent for intervention in case law.
Cable told the committee that the government would consider legislation to allow it to intervene if the takeover was deemed to not be advisable although he added this could be “tricky” to accomplish, unless R&D was added to the definitions of things that are in the public interest.
“Foreign investors play an important and often positive role in the UK economy and we don’t want to disrupt that,” he said, while stressing that the government would want to speak to both parties in depth – with an eye on the takeover code – if a deal is forthcoming by the deadline of May 26.
The deal would almost certainly have to go in front of European Commission antitrust authorities, while the Competition and Markets Authority (CMA) in the UK may also become involved, he noted.