Friday, June 3, 2016

Pfizer's Ian Read FINALLY Concedes Mega-"Inpfersions" Are... A "Dead Letter"

. . .Looking back over my deeds
I can see signs a wise man heeds
And if I just had the chance
I’d never make that same mistake again. . .

— Nat King Cole (1958)
"Looking Back"

[Listen to the YouTube, at bottom.]

I suppose it is progress that Mr. Read. . . can be taught (even if, as that link suggests, his counterpart, Mr. Saunders. . . apparently cannot). As we've intoned for over two and a half solid years, though -- any one with an independent, nuanced eye for big multi-national M&A could see these were both going to be D.O.A. -- from inception.

And so, I am more than a little surprised that it took perhaps $500 million in likely Pfizer combined legal fees, alone -- across two sprawlingly-failed attempts at mega inversions -- and over three years, no less. . . for the lesson to sink in. Here is Bloomberg reporting on it, overnight:

. . . .Pfizer terminated its planned $160 billion mega-merger with Allergan in April after the U.S. Treasury announced rules that would have reduced the tax benefits of the deal. The New York-based company dropped its efforts to buy AstraZeneca, also a potential inversion, in May 2014 after the British drugmaker rejected its offers as too low.

"The administration has made it clear they will do whatever it takes to stop an inversion," Read said. "Nothing is off the table, but the inversion would have to be so clean as to be almost impossible in the present environment. . . ."

Indeed. And as I said, as to the prior attempt at Astra-Zeneca, on April 30, 2014:

. . . .This is likely Mr. Read's very showy way of making a tax protest. And he is able to destabilize and/or mess with a smaller childhood competitor in the process. "What's not to like," from his Machiavellian point of view?

He was born a Briton -- and yesterday, while I was busy with far more pleasurable company -- he flew to London to essentially threaten the British government to stay out of "his" merger business. His hostile takeover business, actually. Ahem. Hostile "British job slashing takeover business," actually -- all the truths told.

That's cheeky, indeed -- even for a man with Mr. Read's estimable ego.

But be that as it may (and the British Lords will weigh in on his proxy fight ideas -- and the anti-competitive nature of it all), I am beginning to think it is all. . . a convoluted ruse. A ruse, to prod Congress to reform tax rates. Mr. Read (using his own captialist's bully pulpit) is trying to (1) destabilze a British competitor -- AstraZeneca, and in one fell move -- also (2) create a sharpened sense -- in the sphere of US public policy debate -- that US tax rates are too high. Said another way, I now doubt he has any real abiding intention to actually close a perhaps $120 billion, leveraged, hostile proxy battled AstraZeneca wipeout. I think he is trying to prod Congress into action, that's all. [I know he'd rather not spend his time declaring the end of his fellow Britons' careers -- and there will be thousands of those decisions, should the deal close.]

Why do I believe he is running a ruse? Well, because his own math doesn't work. Not under the current IRS § 7874(a)(2)(B) rules. He has very publicly stated he intends to achieve an inversion with this deal. By that he means he will avoid IRS § 7874(a)(2)(B), and effectively make Pfizer a British-only domiciled tax-payer, by having AZ nominally acquire Pfizer, and the resulting entity be. . . British. And thus pay home taxes to the United Kingdom -- at a far lower rate, if all goes without a hitch. But there is a hitch -- a math problem.

The mathematical problem is that now that AZ has rebuffed him, he will almost certainly have to increase the size of his offer to win the likely coming proxy battle, with confidence -- and he will without any doubt -- have to offer a greater proportion of cash. Not Pfizer stock -- to get the deal done. That's the way hostile deals work. The target's board -- here AZ -- may simply say "no," until a nearly all-cash topping offer is made. Then it will need to negotiate in earnest. But today's offer (from January 2014, actually). . . isn't that day -- it is only 30 per cent cash. . . .

Okay. It is progress -- that he can learn from his mistakes. And so -- enough from the way-back machine -- off we go, into a perfect Friday pre wedding celebration weekend, out east. Be excellent to one another!

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