AstraZeneca – is it fair on shareholders to decide there is a public interest issue only after a bid?

7th May 2014

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Question – when is a good time to begin to think about applying a public interest defence to protect a key UK company.

Answer – not when the bid from Pfizer for AstraZenica has already been made and indeed improved and may turn hostile soon.

Politically, this is dynamite for the Coalition writes editor John Lappin. The Prime Minister David Cameron would not be drawn in this week’s PM’s question time about whether he would apply a public interest test. But his political challenge is huge. Indeed in our view the issue could turn toxic.

We have seen overseas companies in the past give assurances about British jobs only to see the promises prove to be worth less than the newsprint they have been quoted on.

Most would say the prime example is Kraft and its part closure of a Cadbury’s factory despite assurances to the contrary just before its takeover. It does beg the question whether, in the swift moving corporate world, companies can and should make such promises anyway given their fiduciary duties to shareholders. Actually the Cadbury’s debacle, did lead to some changes to the takeover code to make a company defence easier but any extra hurdles are likely to be tested this time out. 

Adding more spice to this story this week, the Swedish finance minister  Anders Borg, has attacked Pfizer’s past record of assurances.

Mr Borg has skin the game. Astra also has a research facilities in Sweden – as well as Cambridge and manufacturing in Macclesfield – and he has a past example of what can happen.

As Mr Borg told the FT – “The experience from Sweden when Pfizer took over Pharmacia was that they made some very strong commitments to research presence in Sweden. We can only come to conclusion they scaled down and focused on cost reduction.”

But should this bother investors or at least those who don’t live in Cheshire or Cambridgeshire? A few points. First there is a case to made for holding AstraZeneca, one made most forcefully this week by Neil Woodford, the star fund manager due to launch his new fund management business imminently and a;ready managing money for St James’s Place.

Our second point is that in the coverage a lot of nonsense is being talked about big City institutions and their implied greed. The list of shareholders in AstraZeneca includes names of fund managers and insurers which manage money for everyone from bankers with bonuses to Mrs Miggins who runs the corner shop. (the same point applies at least partially to Royal Mail).

Yet even these shareholders aren’t quite fufilling their villainous role – Aberdeen Asset Management boss Martin Gilbert wouldn’t be drawn on his support or not for the deal, yet he add this rather interesting remark to Radio Four. “We do have to look at this in UK terms because it is so important for our research and development in the UK, and Pfizer unfortunately has this reputation of being ruthless cost cutters.”

Investors whether individuals or institutions are not necessarily the villains of the piece at all. They need to consider what is in their own best interests financially. That is why they invest. They could be convinced of Pfizer’s case or of AstraZeneca’s ambitious fight back plans. And they may even think what is better for Britain is better for them say for example if they have a reasonably diverse UK portfolio.

Yet if the Government and the Opposition want investors to hold shares longer we suggest they look at ways to make it a more appealing option. And if Government and Opposition want a public interest defence to apply to several types of foreign takeovers then they really should have set out a framework to allow that happen long before now. Maybe the Cadbury’s takeover was the opportunity, even if there is probably a little less R&D that goes into chocolate than pharmaceuticals.

With clearer rules, investors, large, small, long, medium and short term would have known the basis on which they were investing if the ground rules had been established long ago.

Finally here is that test – “The government can currently intervene on mergers or takeovers where there is a national security issue, an issue of media plurality, competition concerns or if it could affect financial stability.”

Our reading of test is that Pfizer’s bid doesn’t break it. Maybe it should have been rewritten years’ ago.

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