NEWS OF TH E WEEK
ACQUISITIONS: Proposed megamerger
would create U.K.-based drug giant
D
ESPITE TWO REJECTIONS, Pfizer is trying
to persuade AstraZeneca to enter talks about a merger. With the clock ticking and negotiations at a standstill, it’s unclear whether Pfizer will switch from persuasion to a hostile takeover as it continues to press its case. The U.S. firm first approached U.K.-based AstraZeneca about a combination back in November 2013. At a subsequent meeting in January, Pfizer made a preliminary $100 billion offer of 70% stock and 30% cash, which AstraZeneca quickly rejected. However, “in light of recent market developments,” Pfizer approached AstraZeneca again in late April to try to restart discussions. But AstraZeneca declined, saying it saw no “specific and attractive proposal” from Pfizer. Pfizer CEO Ian Read argues that a merger would strengthen the combined firm’s “innovative core” as well as its product portfolio, particularly in oncology, inflammation, and cardiovascular health. The deal also proposes a new U.K.-incorporated holding company with management in both countries, head offices in New York City, and a listing on the New York Stock Exchange. “It would have been very detrimental to the deal to bring AstraZeneca profits, which are taxed differently from the U.S., into the U.S. tax jurisdiction, which is why we opted for a domicile in the U.K.,” Read explained to the media in a conference call. It’s not clear how the U.S. government would view such an “inversion,” or switching of potentially all of Pfizer’s tax liability to a lower U.K. rate. Noting that oth-
er U.S. companies have similarly moved offshore for tax reasons, ISI Group analyst Mark Schoenebaum wondered in his firm’s own conference call whether Pfizer’s move would be “the inversion to end all inversions.” Read has responded by saying, “I don’t believe it should be any concern to the U.S. government that we’re becoming a stronger company and more competitive on a global scale.” He also pointed to operational and financial synergies that would benefit a combined company. Schoenebaum suggested that Pfizer might trim at least 35% of expenses at AstraZeneca. ASTRAZENECA
PFIZER PURSUES ASTRAZENECA
Pfizer contends that a deal with AstraZeneca is consistent with its long-standing strategy to split into three parts—innovative pharmaceuticals; generic drugs; and vaccines, oncology, and consumer health care—by strengthening the businesses that would be split off. However, the timing of any such move, if it happens, might change. “The clock is ticking,” according to ISI merger expert Michael J. Craig, because U.K. takeover law gives Pfizer until May 26 to either make a firm offer or confirm that it will not. ISI and other analysts believe that Pfizer will have to offer at least $110 billion to get a deal.—ANN THAYER
Pfizer hopes to gain a U.K. tax advantage by acquiring AstraZeneca, which has headquarters in London (shown).
CHINA State media embark on campaign defending production of p-xylene China’s state media have begun a campaign to defend p-xylene, a widely used chemical that has been the subject of numerous environmental protests in recent years. China’s state television is broadcasting reports describing how p-xylene is produced in other countries with no public anxiety. A segment on Singapore that aired late last month, for example, noted that petrochemical facilities in the islandstate are located a mere 1.5 miles from the business district. Editorial writers at state-affiliated newspapers are also weighing in with de-
fenses of the chemical because of its role in economic development. The latest Chinese protests against p-xylene occurred last month in the southern city of Maoming (C&EN, April 7, page 9). A survey taken soon after by the nationalist newspaper Global Times revealed how unloved the chemical is countrywide. Support for the construction of p-xylene plants stood at no more than 20% in five cities where protests have occurred, according to the survey. Derived from oil refinery sidestreams, p-xylene is used to make polyester fibers and plastics, including resin for soda
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MAY 5, 2014
bottles. The chemical is toxic but less so than substances such as benzene and vinyl chloride that are widely made in China and aren’t significantly opposed. The China Association for Science & Technology, which calls itself a bridge between Chinese scientists and the country’s government, held a conference on p-xylene in early April that was attended by about 300 scientists and industry representatives. A CAST speaker said the association has a responsibility to educate the public on the merits of a chemical that plays an important role in economic development.—JEAN-FRANÇOIS TREMBLAY
