Officially, they are just talking. But if executives at Pfizer and AstraZeneca do strike a deal, the possible $100bn price tag for the British-Swedish pharmaceutical giant would make it the largest foreign takeover of a UK company in corporate history.
It would dwarf the £18bn Spain’s Telefónica paid for O2 in 2005 and it would beat the $74bn merger in 2000 between GlaxoWellcome and SmithKline Beecham that created GlaxoSmithKline.
You can find a wide range of views currently circulating about the motives and merits for Pfizer of such a purchase. But, if it goes ahead, there is no one who doesn’t think this is a big deal for the companies involved or for Britain. Built on our world-class science base, the pharmaceutical industry is a high-value sector where the UK has a genuine edge.
AstraZeneca is the second largest pharmaceutical company in Britain and the ninth largest in the world. Alone it accounts for around three per cent of UK manufacturing exports, employing 7,500 people here in well paid jobs.
No one who is concerned about the long-term health of the UK economy – and the need to generate balanced, inclusive and sustainable growth to tackle the cost-of-living crisis – can afford to be indifferent to this prospect.
The threatened takeover raises questions about the Government’s half-hearted approach to industrial strategy, and the seriousness of its efforts to rebalance the economy.
To some, the biggest issue raised by the putative deal is that it is a predominantly British company being taken over by a foreign firm. It follows the trend over recent years where we have seen successful British companies swallowed up by large foreign rivals – from fast-growing technology companies like Autonomy, to national institutions like Cadbury.
It is a valid question: why it is not British companies more frequently than they are doing the buying? But in the case of AstraZeneca this is not the primary issue.
Formed by a combination of Swedish and British companies in the last wave of consolidations in the pharmaceutical sector in 1999, AstraZeneca is already a success story and continuing to advance under the assured leadership of Pascal Soriot.
Foreign investment into the UK should be welcomed – and judged on its merits in each case, not viewed as a panacea or a problem in itself. Not every inward investment has been the stellar success story of Tata’s purchase of Jaguar Land Rover or Nissan’s investments in Sunderland, but there are plenty of positive stories to point to.
Equally, many takeovers – both foreign and domestic – have not realised the benefits anticipated at the time they were launched. And that is the issue here: what kind of takeover would this be? Would it be in the long-term interests of AstraZeneca? And closely related to that question: would it be in Britain’s interest?
The first issue is a difficult judgement call. No one can know the future and the motivation for the acquisition can be hard to divine. Some analysts suggest that Pfizer’s interest lies in AstraZeneca’s lead in developing the next generation of diabetes and cancer immunotherapy drugs. In this case, a takeover would have the potential to generate real, ongoing value while ensuring that good jobs remain in the UK.
Others point to the tax liabilities that Pfizer would face if revenues generated around the world were repatriated to the US. GlaxoSmithKline’s deal with Novartis perhaps suggests they believe that bigger is better, but others in the industry remain to be convinced. And Pfizer’s past record – including their $68bn acquisition of Wyeth in 2009 and the closure of their facility in Sandwich, Kent in 2011 – suggests that there are questions for shareholders to ask about the company’s commitment to future R&D in Britain.
These are finely balanced questions. But the point is that they are for AstraZeneca’s shareholders to determine, based on good information and considered judgement.
My concern is that in too many takeovers, not enough of these kinds of questions are being asked as the takeover bus gathers its own momentum. Too often, the short-term interests of speculators buying into a company after a planned takeover has been announced align with the incentives of executives and advisers to drive the takeover bus over the cliff.
The countervailing forces are simply insufficient. There is a need for greater transparency about the incentives advisers have. That is why Labour would restrict the voting rights of shares acquired during the course of an offer period. And it is why Labour is considering clarifying the law to back boards who feel that a takeover would be against the long-term interests of the firm, even if attractive in the short-term. No takeover bus should go over a cliff simply because it was heading that way.
The second issue is whether this will be a good deal for Britain. UK based pharmaceutical companies have led the world by building on the world-class science base generated by our universities. This was consistently supported by the last Labour Government’s ten-year plan and ring-fenced budget.
AstraZeneca is currently moving its main research and development centre to Cambridge, demonstrating the attractiveness of being close to cutting edge scientific research and a skilled, commercially-aware scientific community.
For companies that want to be part of creating the future, centres of expertise – for life sciences, the golden triangle of London, Oxford and Cambridge, as well as around Manchester and Newcastle – can be the location for high-value ‘sticky’ jobs which can’t easily be replicated elsewhere.
If the deal goes ahead, for the sake of this thriving UK sector, my hope is that Pfizer will see the sense in maintaining strong R&D capabilities in the UK. But we shouldn’t be leaving it to chance. We must be backing our winning sectors with such ferocity that companies like Pfizer are clamouring to invest in Britain, not leaving us to worry that they might be wanting to realise a fast buck or to get out.