The governors of
Maryland and Delaware have asked Pfizer Inc.
Chief Executive Officer Ian Read whether jobs will be cut in their
states after the drugmaker promised to keep people employed in the U.K. as a
way to further a $100 billion-plus bid to buy AstraZeneca Plc. (AZN)
If
the acquisition occurs, it would allow Pfizer to move its legal address from
New York to the U.K. to gain a lower tax rate. Read told U.K. Prime Minister
David Cameron that Pfizer would keep at least 20 percent of the combined
company’s research and development workers and substantial manufacturing
facilities in the U.K. for at least five years to win support for the deal.
Read’s
U.K. commitment may boost pressure on Pfizer to reduce U.S. costs to obtain the
savings needed from the deal. Since buying
Wyeth in 2009, Pfizer has cut $4.6
billion in research spending, announced plans to close at least seven labs and
narrowed its scientific focus to six areas of medicine. During the past three
years, the company lost patent protection on its best-selling drug Lipitor,
divested its animal health business and reduced its workforce 25 percent to 77,700 employees by
the end of 2013, according to filings.
The
letter from the governors asked Read to detail potential job losses in the
AstraZeneca deal and commit to continued investments in their states.
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No Assurances
“Despite
our requests, we have received no corresponding assurances about retaining jobs
and research and development in our states,” Maryland Governor Martin O’ Malley
and Delaware Governor Jack Markell, both Democrats, wrote in a letter obtained
by Bloomberg News. “Our concern is exacerbated by Pfizer’s history of closing
U.S. research facilities, including sites in Michigan and Illinois, after
closing on previous corporate transactions.”
Pfizer
officials have spoken to the governors and understand their concerns, said
Mackay Jimeson, a company spokesman. Bringing together the two companies would
help create a leader in the pharmaceutical industry, he said.
“We believe a potential combination with
AstraZeneca would build a stronger company by bringing together our assets,
people and scientific expertise to create vibrant businesses with new potential
growth and opportunities to meet patients’ needs,” Jimeson said in an e-mail.
In
their letter, the governors included six questions, saying they wanted
information to better understand how Pfizer’s potential merger would affect
their states and the role they play in the pharmaceutical industry.
‘Good People’
“We
have 2,600 very good people in Delaware and 3,100 in Maryland,” Markell said by
telephone. “My job is to do everything I can do to make sure they have
continued career opportunities.”
AstraZeneca’s
North America headquarters are located in Wilmington, Delaware. The company has
a research center in Gaithersburg, Maryland, and a manufacturing facility in
Newark, Delaware. About 22 percent of 51,500 people London-based AstraZeneca
employs worldwide work in the U.S., according to the company’s website.
Also
today, Democrats in the U.S. Senate said they may push legislation that would
block companies from shifting their legal addresses overseas to reduce their
tax bills. That effort runs counter to Read’s April 28 statement that he didn’t
believe an acquisition allowing the New York-based company to move its legal
resident to the U.K. would “create a conflict with the interest of the U.S.
government.”
‘Hollowing Out’
Senator
Ron Wyden of Oregon, chairman of the Senate Finance Committee, said he is
looking for a way to move quickly to prevent companies from “hollowing out” the
tax base by moving overseas in name only, while keeping their operating
headquarters in the U.S.
The
response from the governors and lawmakers isn’t surprising, Uwe Reinhardt, a
health economist at Princeton University in New Jersey, said in a telephone
interview.
“These
tax inversions, they are like a 2x4 into the face of Congress, saying pay
attention to this,” Reinhardt said.
The
governors decided to act after reading the past week about the assurances Read
had provided to the British government, Markell said. Their list included
questions about how many jobs would be cut or relocated from Maryland and
Delaware as a result of any transaction, about future investment in the states
and plans for splitting a merged company into different businesses.
Substantial Investment
Delaware
and Maryland have “invested substantially” in AstraZeneca’s success and have a
right to know what Pfizer’s intentions are, the governors wrote.
“It
is also concerning that Pfizer is seeking to complete an acquisition involving
jobs supporting thousands of families in our states in order to achieve tax
advantages,” they wrote. “We while we understand your desire to operate
efficiently, relocating your corporate and tax residence outside of the United
States is not only detrimental to the United States, but potentially comes at a
direct cost to our states and our constituents.”
Maryland
and Delaware have lower unemployment rates than the rest of the nation, and
rank in the top third of Bloomberg’s measure of economic health. In March, when
U.S. unemployment was 6.7 percent, the jobless rate was 5.9 percent in Delaware
and 5.6 percent in Maryland, according to the U.S. Labor Department.
The
governors, who didn’t discuss the letter or operations with officials at
AstraZeneca, asked Pfizer to respond promptly to their request.
Markell
said he received a polite phone call from a senior leader at Pfizer, who said
the company would keep the governor informed of the company’s progress with the
acquisition.
“Keeping
us informed is very different from the kind of jobs they have committed to in
the U.K.,” Markell said.