Monday, May 19, 2014

Pfizer Close Out: "So it ends -- with a whimper, not a bang. . ." Apologies To T.S. Eliot

I'll repeat my overnight comments here -- now.

In its formal rejection, AZ has indicated that a minimum fair bid (if mostly Pfizer stock) would be 58.85 Pounds Sterling, or about $126.8 billion USD.

I guessed $128 billion, because if accepted, the Pfizer stock portion would almost certainly decline in value on the NYSE, due to dilution, and deal uncertainty.

As it is, both firms' shares will very likely now decline at NYSE open, in my estimation.


PS: I suppose if the market believes Mr. Read really is walking away, Pfizer might recover -- over the next few sessions -- at least a part of the 14 per cent decline in its stock -- since deal announcement.

What a mess Mr. Read has made of all of this. Gracious!

May 19, 2014 at 3:12 AM. . . .

Here's the relevant SEC filing from Pfizer -- and from the AstraZeneca reply:

. . . .Leif Johansson, Chairman of AstraZeneca said:

"Pascal Soriot, Marc Dunoyer and I had a lengthy discussion with Pfizer over the weekend about the proposal Pfizer made on Friday evening at a value of £53.50 per share. During this discussion, Pfizer said that it could consider only minor improvements in the financial terms of the Friday Proposal. In response, we indicated, even assuming that other key aspects of any proposal had been satisfactory, that the price at which the Board of AstraZeneca would be prepared to provide a recommendation would have to be more than 10% above the level contained in Pfizer's Friday Proposal. The Final Proposal is a minor improvement which continues to fall short of the Board's view of value and has been rejected."

"Pfizer's approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimisation. From our first meeting in January to our latest discussion yesterday, and in the numerous phone calls in between, Pfizer has failed to make a compelling strategic, business or value case. The Board is firm in its conviction as to the appropriate terms to recommend to shareholders. . . ."

Well -- as I said on Sunday afternoon, if denominated primarily in Pfizer stock, it would take about $128 billion to get on friendly terms. . . and Mr. Read never crossed the $120 billion threshhold. Makes it all look like Kabuki theater on US corporate tax rates. Sad that Mr. Read drained 14 per cent from Pfizer's market cap -- in staging this little play. Sad, indeed. Close out any short you have on PFE.

Even proposing, let alone doing a tax-driven deal (primarily) makes no sense, at north of $100 billion. It just doesn't. Not in real M&A -- maybe in some academic accounting seminar, someone might suggest it -- but not in the real world, where real antitrust and other obstacles loom -- to any transaction on this scale.

Pfizer needed AZ to be friendly, but Read wouldn't pay up, for a friendly deal. And his inversion math wouldn't work at $128 billion (as he needed AZ holders to have more than 20 percent of the combined company equity, to qualify for US tax inveersion -- wasn't possible, if AZ needed mostly cash -- and AZ said it did). As I said, repeatedly -- all of this was obvious on Day One -- to an experienced eye. So my guess is that this is dead. There is almost no pre-market volume, in Pfizer, so we wait for the NYSE open -- there will be huge trades today, no doubt. I guess Pfizer ends off modestly today, even though market is set to rise a bit. We shall see.

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