Pfizer Jacks Up Mega-Offer For AstraZeneca

Drug behemoth Pfizer has jacked up its offer for UK drugmaker AstraZeneca.

Here's the summary from a new announcement that's out this morning:

Proposal represents a substantial premium of 32% for AstraZeneca shareholders1 Proposal represents a 39% premium to the closing price of £35.86 on 3 January 2014, being the trading day immediately prior to the date of Pfizer's January proposal AstraZeneca shareholders would receive, for each AstraZeneca share, 1.845 shares in the combined company and 1,598 pence in cash, representing an indicative value of £50.00 ($84.47) per share2

The full press release is here.

The new offer would value AstraZeneca at $106 billion.

In its earlier offer, unveiled earlier this week, Pfizer indicated that it saw multiple benefits from the transaction, including broadening its product portfolio, and streamlining operations (cost cutting). There's also likely a susbstantial tax benefit as the deal could allow Pfizer to become, essentially, a UK operation. That loophole is explained here.

In addition to the new offer this morning, Pfizer has sent a letter to David Cameron on the merits of the deal.

That letter is here:

Dear Prime Minister,

I am writing to you to address the concerns of the UK Government and science community and your desire to have firm and enduring assurances from us about our commitment to the UK and its life sciences agenda.

We would like to confirm that today, Pfizer made a non-binding cash and share proposal valuing each AstraZeneca share at £50 to the Board of AstraZeneca, as detailed in our accompanying public statement. We believe the industrial logic for a combination between Pfizer and AstraZeneca is compelling. A combined company would bring together powerful and world leading research expertise in key therapeutic areas such as Oncology, Inflammation, and Cardiovascular and Metabolic Disorders, in which the world class academic research resources in the "golden triangle" of Oxford, Cambridge and London would represent a vital component, along with the positive environment for inward investment that the UK Government has created. Ultimately, establishing the world's largest research-based pharmaceutical company in the UK, together with the commitments made in this letter represent a strong indicator of the incentives that your Government has created to attract successful business to the UK.

We recognize that our approach may create uncertainty for the UK Government and scientific community given the strategic importance of life sciences to the Government's Industrial Strategy and the significance of the transaction. We would therefore like to assure the Government of our long term commitment to the UK where Pfizer already employs a significant number of colleagues across Research, Commercial, and Administrative roles. To that end, therefore, subject to successful completion of our combination with AstraZeneca on the basis proposed by us, we will make the following series of significant and tangible commitments:

• Pfizer commits to establishing the combined company's corporate and tax residence in England.
• Pfizer commits to complete the construction of the currently planned AstraZeneca Cambridge campus, creating a substantial R&D innovation hub in Cambridge and the wider scientific community, which will include core research units, laboratory based scientific support lines and European clinical development and regulatory functions.
• Pfizer will base key scientific leadership in the UK who will lead all European and certain global R&D functions based in Cambridge.
• Pfizer commits to integrate the operations of the combined company so as to employ a minimum of 20% of the combined company's total R&D workforce in the UK going forward.
• Pfizer will actively look to locate manufacturing operations of the combined company in the UK, subject to the timing of the UK Patent Box proposals, and will retain substantial commercial manufacturing facilities in Macclesfield.
• Pfizer commits to base the combined company's European business HQ in the UK.
• Pfizer commits to base the combined company's EU Regulatory HQ in the UK.
• Pfizer commits to invite at least two AstraZeneca Board Members to join the Board of the new company.
• Pfizer commits to hold, as appropriate, Board Meetings in the UK and participate meaningfully in the UK commercial, economic and social community.

Clearly, predictability and stability in the local and global commercial environment, as well as the UK Government's efforts to maintain incentives for investment, are important factors to enable success. We make these commitments for a minimum of five years, recognizing our ability, consistent with our fiduciary duties, to adjust these obligations should circumstances significantly change. Our Board has endorsed these commitments in a formal Pfizer Board resolution and will publish a statement describing these promises to the British public. In reflection of the binding nature of these commitments, we are including this letter in our public announcement issued pursuant to the UK Takeover Code regarding the possible combination.

As mentioned above, we view our partnership with the UK Government as a critical part of this potential transaction. We look forward to continued discussions with you.

Yours sincerely,

Ian C. Read