when private overtures don’t succeed, go public and ramp up the pressure on the target from third parties – ie institutional investors. The tactic is on page one of the corporate takeovers manual.
US pharmaceuticals giant Pfizer has done that now after its exploratory merger approaches to the board of Britain’s AstraZeneca last November, and again in January, came to naught.
And it has sparked market interest. Shares in Astra, itself a major global drugs player, leapt 14 per cent yesterday. The stock market has clearly decided the group is in takeover play.
The questions is whether Pfizer has the stomach for a hostile bid if the British group’s board continues in its opposition to a tie-up, believing it has a strong, independent future instead.
Meanwhile, the suitor says it is looking at its options, which falls short of ruling out an unsolicited offer. After, all the informal approach was unsolicited as well.
First, though, there will be the verbal jousting over terms. Pfizer seems to be suggesting a heavily shares-weighted offer – more than two-thirds in paper rather than cash – to win Astra’s hand.
But it can always sweeten the cash component to help get those institutions onside. Second, there would be strong political sensitivities.
The US company is aware of the political firestorm in 2010 in the bitterly contested, eventually successful, takeover of Britain’s leading confectioner Cadbury by Kraft, the American food major.
A similar union and political outcry would be certain this time, too, should Pfizer replace the private lobbying and public jockeying with the mailed fist of a hostile bid.
Viagra-maker Pfizer is done no favours by memories that are still fresh of how Kraft promised to keep one of Cadbury’s factories open only to renege, with big job losses, once the ink was dry.
MPs were also furious that Kraft chief executive Irene Rosenfeld refused to submit herself to a personal grilling at the House of Commons about the £11.5 billion Cadbury bid, just sending along flunkeys.
Pfizer could feel delayed fallout from that transatlantic discourtesy. There would be concerns about the implications for jobs and investment here if Astra fell into foreign hands.
The latter employs about 7,000 people in Britain, and accounts for 2 per cent of exported goods. Even so, a possible combination of the two companies is now definitely out of the antechamber and into the main forum of political and shareholder debate.
On the broader canvas, one can see the impetus in the industry for consolidation. It is a mixture of a lot of money sloshing around Big Pharma coffers,key products of the big players coming out of exclusivity, strategic decisions about which product areas to persevere with, and anticipation of large costsaving synergies.
Witness the recent $20bn asset swap between GlaxoSmithKline and Novartis, and Reckitt Benckiser hovering to possibly hoover up the consumer healthcare arm of Merck.
Every decade or two a particular sector, for disparate reasons, becomes ripe for consolidation. It almost becomes a self-fulfilling prophecy. That is where the drugs industry is now.
The difference with pharmaceuticals is that takeover fever there also has wider ramifications as the industry’s sheer magnitude makes it a stock market swing-sector. The index-trackers are all in there.
It means that many in the City, even those with only a recreational interest in the sector, will cheer consolidation on.