The takeover of Cadbury in 2010 by Kraft Foods sparked a review of how takeovers are conducted in the UK. But as the largest takeover bid in UK history of AstraZeneca by US-giant Pfizer looms on the horizon, have any lessons really been learned?
Kraft first announced that it was considering making an offer for Cadbury in September 2009 and, on 19 January 2010, Cadbury recommended Kraft’s offer to its shareholders. In February, Kraft Foods completed its £11.5bn acquisition of Cadbury, the manufacturer of Dairy Milk and, despite promises to the contrary, the deal saw the closure of the historic Somerdale factory near Bristol and numerous job losses.
The matter was reviewed in Parliament by the business, innovation and skills committee, which commented in its report published 6 April 2010 that: ‘The takeover of Cadbury by Kraft has highlighted a number of important issues in respect of the way in which foreign takeovers of UK companies are conducted.’
But the recent £60bn takeover bid by US pharmaceutical giant Pfizer of UK-based AstraZeneca has prompted a warning on jobs from Vince Cable.
The business secretary said he was committed to maintaining the UK’s position in the pharmaceutical industry as the mooted deal looks likely to end in a hostile takeover bid from Pfizer following AstraZeneca’s rejection of the initial offers.
According to Reuters, at the heart of Pfizer pursuit of the British drugmaker is a shortage of attractive products in its own research pipeline, aggravated by a recent series of disappointing drug launches, according to some industry analysts and money managers.
“Pfizer is doing this from a position of weakness,” said Michael Liss, a portfolio manager at American Century Investments who holds Pfizer shares. “If they had enough in their own pipeline, they wouldn’t need to buy a big company; they’d be doing smaller collaborations.”
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Pfizer’s proposals “very significantly undervalued” AstraZeneca, the U.K. company said in a statement. AstraZeneca also said it was concerned that Pfizer wanted to pay 70% of the price in shares, AstraZeneca said. The company concluded that, absent a specific and attractive proposal, “it was not appropriate to engage in discussions with Pfizer.’’
“We tried to get a mutual announcement to say we were in preliminary discussions,” Pfizer Chief Executive Officer Ian Read said on a conference call today. “AstraZeneca rebuffed that… They’re sellers, we’re buyers,” Read said. “Of course they’re going to say it’s undervalued.”
If AstraZeneca eventually agrees, a deal would create a company incorporated in the UK for tax purposes and run from New York. London-based AstraZeneca’s operations would be sewn into Pfizer’s three new business units.
But what would the takeover mean for UK jobs and future UK investment? At this stage it is unclear but with recent history showing showing a lack care for local jobs by US corporates and Dr Cable already issuing his warnings, there are undoubtedly reasons for concern.
Given concerns about the importance of AstraZeneca to the UK, the Guardian has said Dr Cable could exercise powers under the Enterprise Act, which gives him the ability to intervene on grounds of public interest prompted by a threat to national security, media plurality or financial stability. It is even possible an order could be made to introduce new grounds for applying the public interest test, which previously happened during the HBOS and Lloyds merger.
Cable would only decide whether to intervene after an official offer, which must now come within 28 days under takeover rules. The European Commission could also be interested on competition grounds, given that the deal would have cross-border implications.
Labour has urged caution. Chuka Umunna, the shadow business secretary, said the deal should be judged on three tests of “whether it promotes jobs and growth in the UK pharmaceuticals industry, whether it protects Britain’s knowledge, research and skills base, and whether it comes with guarantees of long-term investment in the UK”.
