Here's an idea for AZ's full-of-promises execs: Tie pay to opportunity cost
Team Deal and Team No-Deal have been volleying back and forth on Pfizer's £55 per share offer for AstraZeneca.
Each side has scored some shots. Investors and journalists are keeping their tallies, for and against. So far, AstraZeneca's ($AZN) optimistic board is defending its rejection, and Pfizer ($PFE) is portraying the cold, calculating, determined--oh, and by the way, better--adversary.
Meanwhile, one U.K. fund manager has an idea--a thought compromise for AZ shareholders, if you will. Richard Buxton, who heads up the U.K. Equities group at Old Mutual Global Investors, proposes AstraZeneca executives put their money where their mouths are.
In other words, Buxton says AZ should tie executive compensation to results similar to the Pfizer payout. The board's remuneration committee should set up current and future incentives to vest "only at the level of the spurned takeover," he proposes.
"A way to reassure investors the board is convinced of the long-term value of its business is through alignment of interest," Buxton wrote in a letter to the Financial Times, adding that recalibrated incentives "would provide comfort to shareholders that if things do not play out as the management envisage, the executives have shared in the pain felt by shareholders at the lost opportunity."
|AZ CEO Pascal Soriot|
AstraZeneca's chairman and its CEO have made some ambitious predictions for the company's pipeline and for sales of new and as-yet-unapproved drugs. CEO Pascal Soriot has quoted $45 billion in annual sales by 2023--a none-too-shabby figure, considering that 2013 sales amounted to $25.7 billion. As for a per-share value, the board has said a takeover bid should value AZ at almost £59 per share.
Teams Deal and No-Deal have spent plenty of energy arguing over the validity of those numbers. As The Guardian points out, Buxton makes clear where he stands; he called the Pfizer offer an "obvious piece of financial engineering." And that's counter to his previous employer's position--Buxton was top fund manager at Schroder's, a Team Deal star, till last year.
Would a pay plan such as Buxton's placate the deal advocates among AstraZeneca's investors? We doubt it would bring many players to the opposite team. But if and when Pfizer backs away, they might take some solace in sharing incentives with Soriot, Johansson and their colleagues. And if the pay plan were to actually pay off? That would mean £59 per share, presumably, and rather soon. In that case, we suspect all would be forgiven.
Whether AZ's leadership would agree to it is another question.
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