By one interpretation, Pfizer's effort to buy rival AstraZeneca fizzled suddenly this morning. By another, a weeklong dramatic push to bring the deal to a climax is just beginning as negotiations go through rather complex gyrations required by U.K. law.
On Sunday, Pfizer said it was making a final proposal to buy AstraZeneca for $120 billion, and that if AstraZeneca did not agree to the deal, that would be the end of the matter. "Pfizer will not make a hostile offer directly to AstraZeneca shareholders and will only announce an offer with the recommendation of the AstraZeneca board," the company wrote.
This morning, in a surprise to no one, AstraZeneca said that the new offer was still too low. In fact, Leif Johansson, AstraZeneca's chairman, was rather emphatic about it in his prepared statement, saying that he'd told Pfizer that to even be considered Pfizer's offer would have needed to be 10% higher than its previous one, which it wasn't. “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," Johannsson said. "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.” AstraZeneca is backed by politicians in the U.K. and Sweden, who are concerned about the inevitable job cuts that would come with a pharmaceutical mega-merger in order to make the deal worthwhile to Pfizer shareholders.
So that's it, right? Maybe not. Vamil Divan, the analyst who covers Pfizer for Credit Suisse, writes that Pfizer could still change the mix of cash and stock in the deal, or add a contingent value right (CVR), which would pay shareholders later if AstraZeneca's pipeline delivers. But he writes that he expects neither to happen and that Pfizer's deal will "simply lapse" next Monday, as per the U.K.'s takeover code.
But maybe not. AstraZeneca shares are already down 9% this morning, and shareholders could push AstraZeneca to finally come to the table with Pfizer for negotiations that are not in public. In a note to investors this morning, Mark Schoenebaum at ISI Group notes that AstraZeneca dropped the words dropped the words "significantly" and " substantial" from the "significantly undervalues" and "substantial shortfall" language it used in its prior rejections, and that it did not use the word "unanimous" to describe the vote of its board of directors. "Our desk believes it's now in [AstraZeneca] shareholders' hands and that this is effectively a 'hostile' tender offer," Schoenebaum writes.
That wouldn't be so much hostile as passive-passive aggressive. The question is whether AstraZeneca shareholders are really willing to hold the company on principle, believing that the returns over several years will be greater than what they'd get now, or whether they would see a deal happen. No matter what politicians and pundits say, for many shareholders the prospect of an easy payoff may still be too much to refuse.
From yesterday: The redacted bit of $PFE's letter sorta spells out their passive-aggressive strategy. pic.twitter.com/qtvjZWHKhS
— Damian Garde (@DamianFierce) May 19, 2014
