Pfizer ($PFE) admits it's wooing Allergan ($AGN) for a merger worth more than $100 billion. But what it's not saying publicly is that GlaxoSmithKline ($GSK) has rejected its advances.
That's the word from the Financial Times, whose sources say Pfizer had been flirting with a GSK buy, but the U.K.-based drugmaker wasn't impressed. Pfizer duly backed away.
After all, Pfizer has experience at trying and failing to make a megadeal in London. Last year, it chased AstraZeneca ($AZN) with a bid that eventually topped $100 billion, but AZ resisted--as did U.K. politicians worried about domestic jobs and R&D operations.
Allergan, however, is up for a friendly deal, which makes a big difference. And analysts figure that integrating Allergan's operations--primarily in the U.S., despite its nominal headquarters in Ireland--would be easier than doing the same with a globally entrenched multinational, which GSK of course is.
|GSK CEO Andrew Witty|
GSK's board had a variety of reasons for rebuffing Pfizer, the FT reports. For one thing, investors appear willing to give CEO Andrew Witty some time to put his new strategy to work, the newspaper's sources say. The company recently remade itself with a multipronged asset swap with Novartis ($NVS), sending its oncology business to the Swiss drugmaker in return for most of its vaccines business and a consumer health joint venture. That deal closed earlier this year, and since then, Witty has championed a high-volume, lower-price approach to growth.
GSK leaders and investors also thought the company's culture wouldn't mesh well with Pfizer's. And they weren't interested in a deal heavy on shares and light on cash, which Pfizer would need to satisfy U.S. requirements for a tax inversion, the sources said. One of the U.S. company's stated goals is moving its domicile to a tax-friendly jurisdiction, and that requires a takeover target's shareholders to end up with a large stake in the merged company.
|Pfizer CEO Ian Read|
Considering Pfizer's experiences in the U.K. last year, when its AstraZeneca foray set off a firestorm of political protest, it's no wonder that CEO Ian Read would be reluctant to push a deal for GSK. And now, talks with Allergan are sufficiently advanced that many analysts see a combo as an all-but-foregone conclusion, with price being the only real obstacle (if a significant one).
Meanwhile, GSK hosted an R&D confab Tuesday, to tout its pipeline and sell investors on its solid future. The company said it's planning to file 20 new medicines for approval by 2020, with 7 of them on tap for launch by the end of the decade. Though GSK is emphasizing high-volume sales of lower-priced products, it also needs some new meds that can justify premium prices.
"The level of innovation in this portfolio is substantial. We believe this is critical in today's operating environment as payers look to balance pressures of pricing and demand," Witty said at the meeting.
Selling its pipeline is crucial for GSK because investors' patience only goes so far. At least one of its major shareholders isn't feeling as magnanimous; influential fund manager Neil Woodford reportedly has been pushing the company for a three- or four-way breakup, and lobbying some key shareholders as well.
- see the FT story
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