Editor
Pfizer’s proposed takeover of AstraZeneca is worrying for the UK’s science base but, if lessons are learned from other areas of industry, doesn’t have to be disastrous
It’s difficult not to be cynical about Pfizer’s motives for wanting to take over AstraZeneca.
The US pharmaceutical giant has made no secret of its admiration of the UK’s corporate tax rates, which at 20 per cent are half that of the US, and has a painful recent history of buying up competitors and then slashing jobs and research. Here in the UK, the 2011 closure of its R&D facility in Sandwich, Kent, and subsequent loss of 2,400 jobs, still rankles.
Should the deal go ahead, opponents fear more of the same and have warned that the proposed £63bn takeover – which would be largest ever of its kind in the UK – could lead to a devastating loss of scientific and research expertise.
AstraZeneca itself, which has so far refused to meet to discuss the deal, has also warned that the corporate restructuring that would follow a takeover could significantly set back the development of new drugs; potentially putting peoples’ lives at risk.
Pfizer, which is expected to come back later this week with a higher offer for the UK/Swedish firm has so far failed to win over the cynics. Responding to questions from a committee of MPs this week, the company’s chief executive Ian Read acknowledged that the merged Astra-Pfizer would spend less on research than is currently spent by the two separate companies and said he was unable to comment on the likely size of the firm’s UK work force.
Against this uncertain backdrop, the firm’s proposed five-year commitment on jobs and investment look somewhat vague. Paul Nurse, president of the Royal Society this week called for a 10 year horizon at least, whilst the Swedish prime minister Fredrik Reinfeldt has accused the firm of reneging on jobs promises made following its 2002 acquisition of Swedish firm Pharmacia.
But whilst any takeover could have potentially worrying implications for British science, it’s worth pointing out that foreign ownership isn’t automatically disastrous. Indeed, there are numerous examples in the world of engineering of successful foreign takeovers that have benefitted the economy. Tata’s success with Jaguar Land Rover is the obvious recent example of how foreign ownership, when coupled with a proper commitment to a brand and its skills base, can lead to huge success.
What’s more, whilst it’s natural to question the commitment to British science of a firm with a history of aggressively cutting costs, the fact that the UK has a tax environment that’s more attractive to large corporations is surely quite a positive thing.
It’s also worth stressing that not everyone in the scientific establishment has come out against the proposed AstraZeneca deal. Some have even suggested that Pfizer’s interest – and its pledge to spend 20 per cent of its R&D budget here – is a vote of confidence in the UK’s world-leading research base.
Whatever happens next – and it seems likely that Pfizer will soon make AstraZeneca’s shareholders an offer they can’t refuse – government must now do everything in its power to extract concrete assurances from the US firm of its long-term commitment to the UK. Anything less than a binding pledge to protect existing jobs and investment plans will irrevocably damage the UK’s science base.
The comparison with Tata’s takeover of Jaguar Land Rover is in my view flawed. The major share holders in Tata are the Tata family, who hold their shares in philanthropic trusts and are Zororastians, who are renowned for following ethical business principles and philanthropy.
Pfizer, in contrast is an asset stripping corporation with a history of closing down operations outside the US, for short term gain. If I was an employee of Astra Zeneca I know whom I would prefer as the new owners.
Pfizers assurances – like Krafts when they took over Cadburys – are of little value.
I am surprised that there is anything to discuss. Basic fact of business is that the board of directors have a legal obligation to maximise the return for shareholders. If it is better for shareholders for the UK arm of the conglomerate to be scaled back then for the board not to do so would be an act of negligence.
A promise to keep things stable for five years or so is just that, watch out for five years plus one month.
If this goes ahead it will have only one outcome regardless of any political arm-waving, we need to develop a more Germanic approach to our national assets.
I take a more supportive view of the possible takeover. Get the best promises for investment and employment on the longest timescale (10 years?) and allow the purcahse to go ahead.
Take the extra tax revenue and do something worthwhile with it (thats important) such as training more scientists and engineers.
I have a great belief in the capabilities of the people in UK R&D. Show Pfizer that long term investment in UK R&D is a great move then they will not want to move
American companies are driven by one thing, and one thing only. Money. The directors claim they have a duty to the shareholders to improve profitability and increase the share price. Coincidentally, these directors usually possess tens or even hundreds of thousands of shares themselves.
Overseas businesses are merely expendable assest in their relentless quest to bolster their retirement funds. Both myself and my wife are experiencing this at the hands of two different (but remarkably similar) American conglomerates who acquired small, successful UK companies that are now on the verge of closing.
A ten year horizon in a profitable company isn’t acceptable. Why does there have to be a time limit at all?
Don’t believe a word they say. If the sale goes through and it all goes belly-up, don’t say you weren’t warned.
When it comes to retaining market leading technology which could form the basis of world leading industries if we were not hamstrung by banks just look at the sale of Edwards, Druck and Invensys, for example.
If you want to know how Pfizer will behave ask an ex Cadburys employee.
I’m amazed that we are even having the debate as over 70% of takeovers destroy shareholder value.
From my American perspective, everything Pfizer touches goes to H@LL. Pfizer deserves no respect. Their drugs are all going off patent, and they realize that AZ has made intelligent acquisitions over the past 48 months to make their pipeline robust. Hind-sight will prove that Pfizer only wants AZs investigational products. Massive layoffs are inevitable if this goes through…in the US, UK and Sweden. JUST SAY NO!
The root cause of the problem is the whole concept of takeovers. Why is it that a board of directors see there primary function as getting the best price for the company they are supposed to be running! Their primary responsibilty should be to deliver shareholder value by making the company successful for the long term. There should simply not be the concept of an offer to good to refuse. If the people that run our companies cannot operate in this way then they should never be allowed to run companies in the first place. If more British companies were employee owned this would not and could not happen.
Well said, Mike. But unfortunately companies are managed by people who are in it for themselves, not the shareholders or employees. In these days of get-rich-quick short termist visions, it will need a fundamental shift in methods of financial appraisals before anything changes.
You should look at the crazy asset stripping carried out on Pharmacia in Sweden. It was a successful company and was basically stripped of anything useful and the majority (if not all) of its staff ‘removed’. This is not easy to do in Sweden but they managed the destruction in record time DESPITE all the promises that were made. Don’t expect the Astra half of AZ to fall into this trap again.
Directors are the owners and supposed to be the epitome of business. A businessman is not part of any nation, he/they is/are a nation unto himself hence he/they don’t give a hoot to a layman’s notions of nation and its property or what ever. Because of their insatiable hunger for other’s property (past, present or future) they have devised means and ways of hogging it. They throw some crumbs to their cronies (intellectuals) who dance around like jokers attracting attention. These are the high flyers who sanitise any one talking about sanity. Profitability is their chosen mantra to lull anybody’s senses, like a mouse attracted to cheese. All dead, living or to-be-born beings are their playing field like games in Nero’s time.
Its high time the people and the goverments wake up and stop boasting of development and living standards in form of welfare state. Which is a hogwash in national sense.
The shareholders are the owners. Of course the director probably own lots of shares too, but it’s difficult to get everybody to vote one way if the aggressor puts a lot of money on the table. That’s democracy. I tend to believe the pessimists, that Pfizer seem to be asset strippers. The drugs market is big business and buying out the competition and stripping it doesn’t just make short term cash, it eliminates future competition. If we are serious about science, research, jobs and prestige in this country then we cannot leave this to the fickle shareholders. The government is the only body that can totally block this action, nobody else.
And this is why such a narrow definition of ownership is ridiculous.
Were not the employees who built this company raised, educated and beneficiaries of the culture? Were not its sales generated from these peoples for the benefit of these peoples?
This company did not spontaneously arise from nothing, it is a cultural phenomenon and to consider ownership simply in terms of those who happen to own shares in it at one point in its history seems an overly narrow perspective.
This is not to say that those who do not risk their own money in the company should benefit from the company’s profits but simultaneously the company has benefited from the cultures it grew out of and so owes those cultures and must therefore in someway be owned by those cultures.
I have read various comments that have been posted and would like to make a few of my own.
I have studied company law (although an Engineer I now deal with the legal side of Engineering). There are a number of aspects to this that some people do not appreciate. A limited comapny does not actually belong to anyone, neither the directors, share holders or employees. It is regarded as an entity in its own right. This is primarily to do with limited liablty which this arrangement facilitates.
Company Law in the UK is formulated around providing relative ease of take overs. This is on the basis that if the directors are incapable of running a company sucessfully and a strong enough “raid” can be mounted then generally speaking the result is beneficial to the company.
There is of course a down side to this and the takeover for purposes of asset stripping can be the result.
I am not supporting the system nor saying it is wrong but merely that this is how the law has been written.
If I were responsible for any decision on this I would look carefully at the history of the organisation mounting the takeover bid to see what their policy has been in recent such takeovers.
I think the answer would be fairly straight forward in this instance.
The shareholders may be bought if the price is high enough. Ultimately the responsiblity falls with the government to block this based on UK interests and competition rules. I can’t see this deal goind ahead.
Ray H ‘This is on the basis that if the directors are incapable of running a company sucessfully…’
A very key point and clearly is not the case here, and has so far formed an important part of AZ’s boards defence against the take over. So to my mind this should go no further. The problem is the next stage of so many takeovers, the offer that can’t be refused, this is where the system goes very wrong.
The original reason for the existence of any firm was production from which it made a profit. This has changed now to, in order to make a profit,goods are manufactured. This is clearly Pfizers stance. The lower the cost of production the better.Clearly research in drugs companies is part of manufacture,but an expensive part, so buying companies with good research already is a good idea, particularly if that research is time limited to those things which are close to the market. After that it doesn’t matter, assets can be stripped and a large profit made. Short term large profits. What happens then? Go after another company of course.
Why can AZ not engineer a reverse takeover offer to buy Pfizer. It would make sense as AZ would then own Pfizer’s considerable manufacturing expertise to make and market AZ’s own, very successful drugs as well as those of Pfizers that still have a useful ‘life’. If nothing else it may make Pfizer back away.
As Ray H so rightly says. English corporate law is geared to make successful companies ripe for takeover and asset stripping. The law should be changed to make UK companies that are a success extremely difficult to sell off for such purposes and to allow government a strategic interest and veto in such takeover attempts.
I agree it would be nice to turn the tables and jump of Pfizer, but they simply aren’t worth it. They are not really a ‘drug’ company but more like a investment company rather than a drug company – they buy their drugs. Cut’s out all the nasty research cost.
If this take over does happen they should be forced to relocate their HQ to UK and move their R&D operations also.