FiercePharma | Tracy Staton
Pfizer considers itself a
megamerger expert. And it's hoping to prove that with another megadeal--a
$100-billion-or-so buyout of AstraZeneca. After last week's headlines about a
possible buyout, both companies confirm that Pfizer is hot to trot and ready to
parley.
AstraZeneca? Not so much. The
company issued a statement Monday morning, saying that its board decided it's "not appropriate"
to talk merger with Pfizer. Yes, Pfizer CEO Ian Read contacted AZ Chairman Leif Johansson in November. And yes, the two
companies met in New York in January, where Pfizer made an offer.
But AstraZeneca rejected that
£46.61-per-share bid, a 30-70 cash-stock combo. Until Pfizer delivers "a
specific and attractive proposal"--preferably with a bigger share of
cash--no talks are necessary.
One big reason why some
analysts are all for the deal is one reason why AstraZeneca might not be. In a
word? Synergies. Pfizer sees big opportunities for cost cuts; ISI Group analyst
Mark Schoenebaum ballparks that expectation at 25%. As the product of one major
merger after another over the past couple of decades, Pfizer has a history of
shedding many thousands of jobs and billions in costs. "We have a strong
track record on synergies," CFO Frank D'Amelio said during a call with
investors and analysts Monday. "It's something we are very good at doing."
When the company bought Wyeth in 2009, Pfizer initially said it would slash $4 billion in costs and cut
payroll by almost 20,000. D'Amelio said Monday that half the cuts hit SG&A,
the other half affected R&D and manufacturing--and overall, Pfizer was able
to cut more than $4 billion. Unsurprisingly, those cuts fell disproportionately
on legacy Wyeth operations.
AstraZeneca has little reason
to expect different. Read says he doesn't yet know exactly where the cuts might
come, and decisions would be made in concert with AZ management.
Pfizer has a laundry list of
other reasons why buying AstraZeneca makes sense--for instance, adding strength
and savvy to its operations in its already-extensive therapeutic areas such as
cardiovascular drugs; and pumping up its offerings where it's weak, such as
diabetes and vaccines.
And on a call with analysts
and investors, Read emphasized the fact that buying AZ would fit right in with
his plans to eventually spin off one or more of the three operations divisions
he created last year. AstraZeneca's older meds would add heft to the
established products division, for one thing, and its pipeline would strengthen
the other two units, which focus on new prescription meds and consumer health.
The stronger these businesses are, the better for a split-up, Read said.
So, should investors continue
to expect an eventual split into two separate publicly traded companies, as
Bernstein analyst Tim Anderson asked? "This potential combination is
exactly on strategy and should strengthen the beliefs they held
previously," Read said.
Another driver? Tax savings.
Pfizer proposes to combine the two companies under one U.K.-based umbrella,
which would give the combination a U.K. domicile and U.K. tax rate. Among the
tax advantages is the "patent box" recently put into effect, which
offers breaks on the profits from IP held in the U.K.
One of the long-held
criticisms of megamergers in general--and Pfizer's megadeals in particular--has
been that these mergers put a damper on innovation. As R&D operations are
cut and merged, the focus shifts from science to integration, and that stalls
progress, or so the theory goes. Analysts raised that objection during today's
call. Read would have none of it; combining Pfizer and AstraZeneca's pipeline
and research work will boost innovation, not hurt it. "I don't view it as a
distraction," he said.
