Pfizer drops AstraZeneca bid; next steps are unclear for both companies

The chance to reduce taxes with an overseas headquarters figured prominently in Pfizer's planning, says financial press

With a required deadline of 5 pm Monday, in London, Pfizer announced that it was withdrawing its bid for AstraZeneca, which topped out (after four tries) at around $117 billion. According to press reports, AZ was looking for a bid at least 10% higher, or around $130 billion, but Ian Read, Pfizer chairman, issued a statement saying, “We continue to believe that our final proposal was compelling and represented full value for AstraZeneca based on the information that was available to us."

Initial reactions in the financial press indicate that this was an almost-done deal, and could be revived later this year. (Pfizer can’t do anything for six months, under British law, but AZ can approach Pfizer sooner.) The fact that the final Pfizer bid was so close to an acceptable offer, but not subsequently increased, can be read as Pfizer being conservative of its assets, or AZ’s board signaling how much it didn’t want the deal. Interestingly, AZ’s American Depository Shares had been plodding along in the low to mid-$60s prior to the Pfizer offer, but are now $10 higher as of the close on Monday. AZ chairman Leif Johannson made the claim, along the way, that AZ’s sales would increase by 75% by 2023 (from last year’s roughly $26 billion to around $45 billion); of course, it’s unlikely that Johannson or Read would be around by then to vouch for that. There is talk that an earlier initiative, to split Pfizer into two companies a la Abbott/AbbVie, could be revived; recall that Pfizer and its stockholders did well with the spinout of the Zoetis animal health unit a year ago.

Another factor which looms large among financial analysts and reporters was Pfizer’s ability to obtain more favorable tax rates by relocating to the UK after the merger, in a process known as an inversion, and something that other pharma companies have recently enacted. That generated talk both in Washington (to revise tax policy) and in London (to prevent that from being a reason for non-UK companies to acquire UK ones).