Pfizer's approach may turn hostile after AZ rejects second offer

AstraZeneca Chairman Leif Johansson

Pfizer ($PFE) upped its offer for AstraZeneca ($AZN) today from $100 billion to $106 billion, and AstraZeneca dutifully rejected it, but experience in the world of pharma takeovers tells us this is unlikely to be the end of the drama.

While the whole process has been somewhat genteel up to now--Pfizer CEO Ian Read promised British Prime Minister David Cameron that AstraZeneca's Cambridge-based factory and R&D center would remain open and 20% of the combined company's R&D staff would be employed in Britain--Mick Cooper, an analyst at Edison Investment Research, tells Reuters to expect it to get ugly. "I think it's making it increasingly likely that Pfizer is going to come back with a hostile bid," Cooper said.

We have seen bidders bypass boards and take their offers directly to shareholders before, and while it's not unusual for acquisition targets to play hard to get, Big Pharma history suggests the acquirer usually gets its way. In 2012, for example, GlaxoSmithKline ($GSK) nabbed Human Genome Sciences for $3 billion after three months of wrangling. And Roche ($RHHBY) spent some 9 months persuading Genentech to agree to a merger before finally closing the deal for $46.8 billion in March 2009.

In a statement today announcing its decision, AstraZeneca blasted Pfizer's new offer as "inadequate" and said the merger would threaten the progress the company had made as an independent entity. "Pfizer's proposal would dramatically dilute AstraZeneca shareholders' exposure to our unique pipeline and would create risks around its delivery," AstraZeneca Chairman Leif Johansson said in the statement. "As such, the Board has no hesitation in rejecting the Proposal."

The company initially expressed concern that the original offer, made up of 30% cash and 70% stock, would leave investors vulnerable to any missteps Pfizer might make in pulling off the megamerger. The latest bid doesn't do much to quell that concern: Pfizer is now offering a split of 32% cash and 68% stock.

Some analysts are predicting Pfizer will raise its offer yet again in an effort to get the deal done before potential changes in U.S. tax rules would prevent it from moving its tax base to Britain, according to Reuters. Mark Clark, an analyst at Deutsche Bank, told Reuters investors are expecting Pfizer to raise the per-share bid from today's £50 ($84.30) to somewhere between £52 and £55 ($87.73 and $92.87).

- read AstraZeneca's statement about the rejected bid
- here's the Reuters story
- read the WSJ article (sub. req.)