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Associated Press
Pfizer CEO Ian Read leaves a May 13 parliamentary hearing in London on his company’s proposed takeover of AstraZeneca, which was dead a week later.

Hostility barely concealed in Pfizer’s failed bid

– Even in a high-stakes deal worth almost $120 billion, one that would create the world’s biggest drugmaker, the personal details matter.

In the failed takeover talks between Pfizer and AstraZeneca, a surprise offer, disagreement over a press release and the difference between a personal visit and a telephone chat played a big role. Chinese food had a cameo.

“It’s sometimes not just about the money but about how you play the psychological issue behind a transaction,” said Daniel Galvan, a director at investment bank GBS Finanzas in Madrid. “Pfizer could have had softer manners when approaching AstraZeneca.”

Pfizer ended its six-month effort to buy AstraZeneca on Monday after the London company’s May 19 rejection of its last bid, for 55 pounds a share in cash and stock.

In the aftermath, the recriminations have begun and questions raised about Pfizer’s tactics.

In AstraZeneca’s eyes, Pfizer turned a supposedly friendly deal into a hostile one, alienating its board, according to people with knowledge of the matter who asked not to be identified.

For its part, Pfizer wasn’t convinced that AstraZeneca was serious about negotiating, especially near the end, the people said.

During the conversations with AstraZeneca’s management, “they were always very courteous and listened,” Pfizer Chief Executive Officer Ian Read said in an interview with Britain’s Telegraph newspaper Tuesday. “We got the sense they definitely wanted to remain independent and simply didn’t believe we were offering them value.”

The negotiations began last November when Read approached AstraZeneca about a possible transaction.

Pfizer would transfer its headquarters from New York to Britain to gain a lower tax rate, add new cancer drugs to its pipeline and take advantage of cost reductions from overlapping operations.

By January, AstraZeneca CEO Pascal Soriot and Chairman Leif Johansson were intrigued enough to fly to New York to meet with the Pfizer head, where they gathered at The Pierre hotel overlooking Central Park.

There, they received an offer of 46.61 pounds a share. While it was about 30 percent above AstraZeneca’s stock price, Soriot rejected it. Rather than pursue a deal further, Pfizer decided to walk away, to the surprise of people close to AstraZeneca.

Over the next few months, however, the British firm reported positive news on its revenue, and other pharmaceutical deals heated up.

Discussions with AstraZeneca were revived April 26, when Read called Johansson in his native Sweden. The U.S. company pushed for a joint statement saying the drugmakers were in takeover talks. Johansson refused, saying he needed a new offer first, AstraZeneca said.

This disagreement over the press release set the hostile tone that continued in the following weeks, two of the people close to the British drugmaker said.

“There’s a veneer of civility here, but they’re not very happy with each other,” said Julian Birkinshaw, a professor of strategy at London Business School.

Two days later, Pfizer made its interest in AstraZeneca public, and on May 2, it raised its bid to 50 pounds a share. AstraZeneca rejected it hours later, saying the terms “substantially undervalue” the company.

The public announcement set off a heated political story in Britain that was tilting against Pfizer.

Members of Parliament expressed concern over Pfizer’s history of large transactions followed by massive firings and the shutdown of research facilities and factories. In response, Pfizer promised to locate 20 percent of its global research and development workforce in Britain.

The tensions between Read and Soriot were exposed in televised hearings before parliamentary committees May 13 and May 14. Soriot suggested the takeover could harm patients because the distraction would delay development of life-saving cancer drugs.

The next day’s headlines screamed that Pfizer’s takeover would cost lives, and Read had to assure lawmakers that the company wouldn’t jeopardize getting medicine to patients.

Read flew back to New York and, unbowed, upped his offer again, to 53.50 pounds, in a May 16 letter to Johansson. Johansson called Read the next day and invited him back to London for a face-to-face meeting.

Read, who was reluctant after his last trip and worried about the risk of humiliation of traveling to London only to be rejected, suggested a conference call instead, according to people familiar with the talks.

AstraZeneca’s board members weren’t happy with his refusal to meet in person, viewing it as a sign that Pfizer wasn’t committed to reaching an agreement, the people said.

After a conference call May 18 failed to lead to a deal, Pfizer put out a press release late that evening with its “final” offer of 55 pounds a share without first alerting AstraZeneca.

Staying up all night, fortified by Chinese food from nearby Pearl Liang, known for its dim sum and sea snails, AstraZeneca executives drafted a statement rebuffing the offer, which was released at 7 a.m.

The 55-pound offer was a last-gasp effort by Pfizer to try and win over AstraZeneca’s large shareholders, said Birkinshaw, the London Business School professor.

In the end, “They’ve managed to tick off the U.K. government, the U.S. government and the Swedish government, and that’s quite an unusual trick,” he said.

U.S. policymakers were upset over Pfizer’s proposed tax move, while Sweden’s Finance Minister Anders Borg said the deal would destroy research and development jobs in Europe.

Pfizer’s CEO said the offer showed its restraint.

“We have said from the beginning that we will remain disciplined in the price we are willing to pay and we will not depart from that guiding principle,” Read said May 18.

The failed takeover attempt, which would have been the biggest in British history, also has implications for the advisers.

The banks working with Pfizer and AstraZeneca on the deal will miss as much as $288 million in fees, according to estimates from Freeman & Co. They’ll probably only be paid as much as $32 million, or a fraction of the amount they would have earned if the deal had been completed, it said.

For Pfizer, no other ripe targets offer the triple benefits of a lower tax rate in Britain, cost savings and new cancer drugs, analysts say.

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