Pfizer’s attempt to get into bed with AstraZeneca has rolled into another week as a series of objections and complications have prevented the pharmaceutical pair going all the way.
US giant Pfizer, perhaps best known for producing erectile dysfunction combatant Viagra, has beefed up its attempt to seduce UK-based AstraZeneca with a £63bn bid, shooting it firmly to the top of the league of offer sizes for a UK company to date. Needless to say, it is the largest bid so far in a year that has seen 15 transactions each worth more than $10bn, the most since the record M&A rush of 2007.
It is easy to see why AstraZeneca has set Pfizer’s pulse racing. Among many other attributes, AstraZeneca regularly features in the top 10 of dividend players each year and since 2007 has paid out £16.9bn in dividends, according to data from Capita Asset Services.
Much of the debate around the deal has understandably been around how the takeover would affect the combined firm’s research and development department. Objectors believe it would stall crucial drug development, as well as affect jobs; not to mention those who believe Pfizer is eyeing a tax advantage by setting up shop in the UK.
These issues were discussed as bosses of both companies were roasted by MPs this week over the deal. Pfizer had promised to employ at least 20% of the combined company’s research and development workforce in the UK, but the guarantee would only last five years, which many commentators believe is not long enough, especially in the pharmaceutical industry. Pfizer chairman Ian Read also admitted job losses would be necessary in order to streamline a merged business.
This got me thinking about what might happen to AstraZeneca’s £5.3bn pension scheme if the firms come together. Clearly pension funds are a big deal when it comes to a merger – take the example of BA and Iberia back in 2010 and the small matter of BA’s then £3.7bn deficit which stalled the deal taking off.
But changes to the Takeover Code in May last year mean a bidding company is required to state in its offer document what its intentions are with regard to the target company’s defined benefit pension arrangement which should, in theory, make a difference.
In the case of the Kraft/Cadbury deal in 2010, prior to the Takeover Code amendment, Kraft Foods and the Cadbury Pension Fund trustees wrote an open letter to members of the pension fund, stating: “Kraft Foods would like to take this opportunity to reassure you that the decision by the shareholders to accept Kraft Foods’ offer has not undermined the security of your pension and that the trustees and Kraft Foods are focused on protecting the pensions of all members.”
It remains to be seen whether Pfizer’s takeover approach will rise to the occasion or flop, but should the duo seal the deal then I hope members of the AstraZeneca scheme receive a similar confirmation from the employer and trustees. I also hope to see shareholders – including of course other pension funds and insurance companies – make an informed decision on the right outcome and the pension scheme trustees given as much care and attention in the deal as the rest of the stakeholders. After all, thousands of members’ benefits could depend on the result.
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