When Kraft bid for Cadbury, I recall having a conversation with someone senior at the British chocolate maker as to what would be an acceptable offer.
“I reckon you’ve got 850p in your head,” I said. The Cadbury man spluttered, and tried to say there were other considerations as well. He stressed that he and his colleagues were determined to stand and fight, to do everything they could to halt the would-be US acquirer. He was not going to be drawn on a discussion about the numbers. Note, though, that he did not deny it either.
This was not rocket science on my part. All I’d done was do a ring round of a few City analysts and ask them for the figure at which they thought Cadbury shareholders would run up the white flag – or rather, the investor institutions would walk off with a fat profit, leaving the historic British firm in the hands of the US predator.
Forget the huffing and puffing, the raging about a foreigner coming in. That sort of stuff is for the politicians, unions, local communities where jobs may be threatened. They are right to be concerned – such bids are not necessarily a good thing for the UK. But from Day One, the City will have had a target number in mind. Pay that and Cadbury is yours; fall short and you won’t get it.
So it is with Pfizer and AstraZeneca. What’s the price which the AstraZeneca board is holding out for, and if it’s achieved, will see it throw in the towel, heads held high? I reckon £59-£60 a share. Already, Pfizer has tabled a bid of £50. Up it a bit more, and again, until you reach £59, and the British firm will fall. To be fair, some shareholders have indicated that they would prefer to stick with AstraZeneca, but this is what most of the City institutions are likely to be looking for.
Let’s be clear: they’re one of two sets of people who matter in this proposed takeover. The other is the Eurocrats in Brussels. This is a big enough deal to come within EU mergers regulations. Only the European Commission can block it, and it’s not clear whether it would have reason to, since the criterion by which it assesses such mergers is solely the effect on competition, not on such things as jobs or the science base.
I’ve left out another grouping; one that we British might suppose carries weight and has enormous power in these affairs. That, of course, is our own political masters at Westminster.
The truth is there is absolutely nothing they can do to prevent Pfizer coming in and grabbing AstraZeneca. At the moment there is a lot of posturing going on, with Ed Miliband, in particular, jumping up and down, accusing David Cameron of acting as “cheerleader” for the American company’s £63bn move.
But Ed, be honest now. If you were Prime Minister today, what could you do to shoo Pfizer away? The answer, as you and I well know, is precisely nothing. It’s possible that a clause could be added to the Enterprise and Regulatory Reform Act 2013, adding research and development to the types of mergers that can prompt government intervention, namely those affecting our defence interests, media, and financial stability. However, even if that were to be done, ministers would still be powerless to act since the case falls under EU jurisdiction, and would not come to them for a decision.
In theory, the UK could press to reform the EU regulations, so that mergers of this kind would be judged under different criteria. But that would take an age, and would definitely fall outside the timeframe of the mooted Pfizer-AstraZeneca marriage. If Ed Miliband is saying that, as PM, the UK would seek such a change, then good luck to him in achieving EU-wide consensus on that one.
Vince Cable knows this, too. The Business Secretary appears to be opposed to the deal, but is markedly unspecific on the point of how he, as the Cabinet member in charge of such things, could actually do anything about it. Mr Cable wants to be seen to be more caring than the Tories – and to be fair, he probably is more concerned about the impact on jobs and our R&D expertise – and he’s anxious that Labour does not present itself as the only party that backs British business. But while he says he is concerned about the bid on “public interest grounds”, there is precious little he can do to put his words into action.
Ironically, in his four years as Business Secretary, if he cared so much about this, Mr Cable could have sought to change the rules to make it more difficult for foreigners to buy up our assets. His department passed new legislation on the competition rules just last year, while the European Commission has been consulting the UK (and other countries) on reforming its merger regulations. But what has he done about it? Zero. Mr Cable even made a point of saying Lord Heseltine was wrong in his review into UK economic growth to say there should be a failsafe mechanism for UK government intervention in takeovers of key UK assets by overseas companies. It’s a bit rich of Mr Cable, now, to turn round and complain about Pfizer.
Mr Cameron is aware of all this as well. Asking the Cabinet Secretary Sir Jeremy Heywood and Treasury mandarin Sir John Kingman to assess the Pfizer plan is pure window-dressing, nothing more, nothing less. It’s the classic ruse of a PM wanting to be seen to be doing something, a ploy designed to secure some decent PR, when he knows that in reality Sir Jeremy and Sir John’s findings have no real significance whatsoever.
All the intrepid duo can do is dream up some assurances that Pfizer must sign up to in order to obtain government backing. These though, will have no legal authority.
Pfizer has thought of some commitments of its own, saying in a letter to Mr Cameron that the number of jobs in the UK will be held constant for five years, a new R&D park will still be built in Cambridge, and 20 per cent of Pfizer’s group science will be domiciled in Britain.
But the jobs guarantee is only provided unless “circumstances significantly change”; the Cambridge site was already going to be developed; and 20 per cent of the combined group’s staff would be in the UK anyway. In other words, the letter is full of platitudes and get-outs. Pfizer can tear it up four years hence and the government of the day, even one with Mr Miliband at the helm, will only be able to watch, powerless.
Pfizer’s bosses are only human. The best hope of stopping them is to scream and shout – they have no desire to be unpopular, they will crave acceptance. There are real issues at stake here and if the anti-Pfizer movement is vocal enough it may well resonate in the US giant’s boardroom.
Likewise, at least two Parliamentary select committees are gearing up to interview the Pfizer and AstraZeneca management. Again, that is not something the Pfizer folk will relish. We should, though, be under no illusion: it is only noise. The MPs can recommend as much as they like but select committees have no decision-making powers even here in the UK, still less in Brussels, so they’re in no position to head off the Pfizer purchase.
We’ve been here before, with Kraft. Its chief, Irene Rosenfeld, did not even deign to appear before MPs, such was their supposed hold over her. Public promises as to future conduct were made by her company and then it ignored them. Why? Because it can.
If Pfizer is made of similarly stern stuff, it too can behave the same way. In the end, despite a massive amount of energy, and money, expended on anti-Kraft campaigns, MPs and others taking to the ramparts, sections of the media going wild with fury, the British company fell. What was the price it went for? 850p a share. It was always going to.
AstraZeneca, sadly, is no different. Only the shareholders have the ability to refuse and they’re mandated to seek the best return on their investments for their clients, the funds in which we hold our pensions. Their decisions may or may not be good for the UK, but unless the politicians want to add policy on large mergers to the list of items to be renegotiated with Brussels, then it is what it is.