Bloomberg| Drew Armstrong
With prospects for an
AstraZeneca Plc deal falling apart, Pfizer
Inc. Chief
Executive Officer Ian Read is facing a
new question from investors: What now?
There aren’t other ripe
targets offering the triple benefits of a lower tax rate in the U.K., cost savings and new cancer drugs, analysts say. Without
AstraZeneca’s promise of new growth, Read, 60, will likely return to an earlier
plan to further break up what was once the world’s biggest drugmaker.
Read has split Pfizer into at
least two units internally, with the idea they may one day be spun off on their
own, potentially giving investors a choice between one business stocked with
brand-name drugs and a second with older products.
While Read may have failed
with AstraZeneca, he’s gained a reputation for doing what’s needed to please
investors. Pfizer’s shares have gained 75 percent since he took over as CEO in
December 2010. “He’ll do anything to get the stock price up,” said Jeff Jonas, an investor with Gabelli & Co. in Rye, New York. “As long as he
continues to have that view, he’ll be fine.”
AstraZeneca yesterday rejected
New York-based Pfizer’s third takeover offer, for 69.4 billion pounds ($117
billion). At the same time, London-based AstraZeneca’s chairman, Leif Johansson,
said the deal -- the largest ever in the industry -- was probably dead under
U.K. takeover rules.
Read could now look elsewhere.
The company’s business development team had previously considered acquisitions
of Merck & Co. and Bristol-Myers (BMY) Squibb Co., according to two former executives familiar with Pfizer’s
plans who asked for anonymity because the discussions were private.
Cancer
Therapies
Like AstraZeneca, Merck and Bristol-Myers are
experimenting with a new generation of cancer treatments that use the body’s
immune system to attack tumors. They also have existing partnerships with
Pfizer that could have been the first steps of a tie-up.
It’s unclear how far the examinations
of Merck and Bristol-Myers went, or if they were just war-gaming by the
company’s deals team, the two former Pfizer executives said. Steve Cragle, a
spokesman for Whitehouse Station, New Jersey-based Merck and Laura Hortas, a
spokeswoman for New York-based Bristol-Myers, declined to comment.
Neither company, though,
offers what AstraZeneca did -- a chance to legally relocate to the U.K. to take
advantage of that country’s lower tax rate, or to deploy a huge chest of cash
stuck overseas and out of the reach of U.S. tax law.
At the same time, another
mega-merger attempt might not be welcomed by investors, said Gabelli’s Jonas.
“I wouldn’t want to see them go after another big deal,” he said. “There’s not
that many targets, and this was one that made sense.”
‘There’s
Nobody’
Part of the dilemma for Pfizer
is that no other company hits all of its needs on tax, cost savings and new
drugs. “There’s nobody,” Mark Schoenebaum, an analyst with ISI Group LLC in New York, said in a telephone interview.
“I don’t think there’s much else they can do.”
Since becoming CEO in 2010,
Read, an accountant by training, has sold two non-drug businesses in
$10-billion-plus deals, reorganized the company’s management, and trimmed and
refocused its research. Pfizer’s stock has out-performed the Standard &
Poor’s 500 Index during his tenure and gained more than U.S.-based competitors
Merck, Eli Lilly & Co. and Johnson & Johnson. The moves have helped
keep the company on an even keel after the patent loss of the Lipitor
cholesterol pill, once the world’s best-selling drug with almost $13 billion in
peak sales.
Better
Outcome
Anant Sundaram, a professor studying deals
and valuations at Dartmouth College’s Tuck School of Business in New Hampshire, said a failure to buy AstraZeneca may not be the worst thing for the
company.
“When bidders walk away from
these overvalued deals, it ends up very well for the bidding company’s
shareholders,” Sundaram said in a telephone interview.
Still, an AstraZeneca deal
remains a possibility with six days left for the companies to reopen talks
before a U.K.- imposed May 26 deadline, and the option for Pfizer to reopen the
talks six months later once the heat of the current give-and-take has died
down.
Pfizer said the deal’s fate
“is now up to AstraZeneca’s shareholders,” according to an e-mail from Joan
Campion, a company spokeswoman. “We believe our final proposal represents compelling
and full value.”
“I have a feeling we haven’t
heard the last of this, by any sense,” Sundaram said.
One of Pfizer’s main issues is
that the company is so big, any moves it makes have to be equally dramatic in scale to make a
difference. After a decade that saw Pfizer swallow three acquisitions worth of
a collective $216 billion, bringing one new blockbuster drug to market doesn’t
make much of a dent.
“After a while, size becomes its
own enemy,” Sundaram said. “The scale of wins that you need to move the needle
on market value get proportionally larger, and hence more difficult. Single
products here and there are simply not enough, or fast enough.”