George Osborne, the Chancellor, has changed his tune. When it was first reported that Pfizer wanted to launch one of the world’s biggest takeover bids for AstraZeneca, a British-based pharmaceutical company, he thought it a great vindication of his corporate low-tax policy. But Chuka Umunna, Labour’s astute shadow Business Secretary, stung the Government by branding it the “cheerleader” for a merger that was being pursued for many of the wrong reasons. Since then Mr Osborne and the Prime Minister have emphasised the assurances they have secured from Pfizer to preserve British research and development and British jobs.
Today, the two companies had the chance to make their cases in Parliament, in front of the Business Select Committee. It has to be said that neither Ian Read, chief executive of Pfizer, nor Pascal Soriot, of AstraZeneca, was impressive. Mr Read managed to avoid a repeat of last week’s answer to the question of whether he wanted to break up AstraZeneca: “We will conserve that optionality.” But he failed to persuade the impartial observer that his company’s promises were credible. His problem is Pfizer’s record. Even if the merged company kept 20 per cent of its combined R&D workforce in the UK, as it claims, it would be 20 per cent of a shrinking number.
On the other hand, Mr Soriot’s main argument against the takeover was that it would distract his employees.
That said, the case for a merger is weak. Indeed, many of the biggest takeovers fail to add value. They tend to be driven by the egos of corporate empire-builders. And the main rationale for this deal seems to be tax rather than the logic of wealth-generation.
Doubts about this possible merger are not grounded in mere economic nationalism. AstraZeneca is barely a British company. Its connection to the old Imperial Chemical Industries is tenuous. Only 14 per cent of its workforce is employed here; its chief executive is French and its chairman Swedish. Mr Osborne is right to argue that the national interest requires the Government not to try to promote “British” companies but to support science education, commercial links for universities and a culture that is open to business. In general, this Government’s record in these areas is creditable.
There is a separate question of whether UK corporate law could or should be changed in such a way as to discourage big mergers, which so often fail to produce the economies of scale, synergies and other business-school jargon that their advocates promise. Legislating for a “public interest” test decided by politicians would be unsatisfactory. As the law stands, that kind of test can be applied only in defence of media plurality and national security. To add “the nation’s science base” to that list of special cases would be arbitrary.
Yet Mr Osborne should realise that creating a culture that is supportive of business does not simply mean low taxes. It is one thing for Britain to be supportive of business. It is quite another for the Chancellor’s obsession with low taxes to have paved the way for the asset-strippers.