AstraZeneca (AZN) Opts to Fly Solo, Rejects Final Pfizer (PFE) Bid

Joel Anderson  |

Shares in major pharmaceuticals company AstraZeneca (AZN) plunged Monday after the company rejected the final buyout offer from rival pharma giant Pfizer (PFE) . The news sent shares for the London-based company plunging over 12 percent as some investors who might have been hoping for a payoff in the form of a 20-percent premium on their shares fled the stock.

Pfizer’s final offer for $119 billion was still, apparently, too low to woo AstraZeneca shareholders. In a statement, the company stated that it "reiterates its confidence in AstraZeneca's ability to deliver on its prospects as an independent, science-led business."

Pfizer’s overture to AstraZeneca would have helped create one of the 10 most-valuable companies in the world, adding a robust portfolio of approved products and a large clinical pipeline. However, the primary motivation for Pfizer’s pursuit clearly appears to be the potential for reducing the company’s tax burden by moving the company to England in at least the nominal sense.

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The United States currently has American corporations paying taxes on all worldwide income, not just income coming from within its borders, and American corporations can defer tax payments until that income is repatriated. As such, by moving the parent company’s headquarters overseas, Pfizer could shift a significant portion of its income out from under the US tax code.

"Pfizer's approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimization," Leif Johansson, AstraZeneca's chairman, said Monday.

"From our first meeting in January to our latest discussion yesterday, and in the numerous phone calls in between, Pfizer has failed to make a compelling strategic, business or value case."

However, the question remains for AstraZeneca shareholders: was this the right move?

Pfizer’s bid raised questions about AstraZeneca’s potential in the long-term as a stand-alone company. The latest issue of Barron’s implied that Pfizer was about to overpay for a company with one of the worst outlooks among major drug makers. However, as always, valuations are difficult in the pharmaceutical industry where the uncertain results of clinical trials ultimately decide the value of a product pipeline.

Pfizer, though, has until May 26 under British law to decide if it wants to walk away from the process of push harder.

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