RTR- Astra, Pfizer deal could face Chinese antitrust hurdle

May 1 (Reuters) - Pfizer's plan to buy AstraZeneca for around $100 billion could face antitrust hurdles in China, where the two companies rank No. 1 and No. 2 among multinational suppliers in the prescription drug market.

The need for merger clearance from Beijing would come on top of antitrust approval in the United States and Europe and could potentially delay proceedings, according to people familiar with the situation.

Julian Huppert, member of parliament for Cambridge, where AstraZeneca intends to build a new research centre and headquarters, said China was likely to look hard at the deal, especially after a bribery scandal last year involving drugmaker GlaxoSmithKline.

"I know China is concerned. From China's perspective, these are their two major suppliers potentially merging into one, and given their history with GSK, there is some obvious nervousness there," Huppert told Reuters.

China's six-year-old anti-monopoly law is playing an increasing role in international deals, forcing often painful delays. Some see its antitrust regime as an industrial policy tool.

China's fast-growing market is a lure for global firms. Drug sales in the country, which totalled $82 billion in 2012, are expected to reach $160-190 billion by 2017, making it the second-biggest market behind the United States, according to IMS Health.

Pfizer has yet to make a firm offer for AstraZeneca after having two approaches rebuffed, and a company spokesman said it was "premature to speculate on any specific impacts in specific geographies".

Glencore Xstrata is a recent example of a company that ran into problems with China's Commerce Ministry (MOFCOM). Glencore agreed to sell a Peruvian copper mine to secure approval from China for its takeover of miner Xstrata.

A Chinese antitrust review has also contributed to a delay in a tie-up between Omnicom and Publicis.

>>> AZN/PFE - Pfizer Takes Another Little Blue Takeover Pill




Pfizer Takes Another Little Blue Takeover Pill

On 4/28/14, Pfizer Inc. (NYSE-PFE) confirmed prior discussions with AstraZeneca PLC (XLON-AZN & NYSE–AZN) and a continuing interest in a possible combination via a merger transaction. Separately, AZN confirmed that the PFE Chairman contacted its Chairman (on 4/26/14) to have a discussion, their first communication since the initial approach in January 2014. PFE wanted to issue a joint statement on 4/28/14 publicly disclosing that the companies were involved in discussions. However, the AZN Board determined that it was not appropriate to engage in discussions absent a “specific and attractive” proposal. The companies previously met on 1/5/14; AZN disclosed PFE made a “preliminary and conditional” proposal consisting of 1.758 PFE shares and £13.98 cash per AZN share (£46.61 value based on a $30.52 PFE close price on 1/3/14). AZN concerns included the large proportion of stock consideration and the proposed tax inversion deal structure (from redomiciling the combined entity in the UK). In addition, AZN felt the proposal “very significantly undervalued” the company and its future prospects, specifically its diabetes franchise and oncology pipeline. The proposal was rejected by AZN on 1/12/14; a few days later, PFE notified the company that it was no longer actively pursuing a transaction.

While AZN has verbalized “no, no, no”, its body language is saying “yes, yes, yes” (to the right price premium and deal terms). PFE is now in a 30 calendar day period before it is required to give a firm intention; otherwise, any future proposal would be frozen in a six month penalty box (except if both the Takeover Panel and AZN agree to extend). The company is speaking with AZN shareholders in the interim; there is institutional ownership overlap to which the deal synergies and lower tax rate should appeal. PFE was reported this morning to be preparing a sweetened bid which may be announced next week; we believe a takeover value in the low-mid £50s should ultimately carry the day. The proposal is subject to three conditions – customary due diligence, the unanimous recommendation of the AZN Board and AZN directors giving irrevocable undertakings to accept any offer – all of which may be waived in whole or part. PFE has an option to adjust the proposal based on a higher-than-projected AZN dividend payment for 1H14 and any “whitewash transaction” prior to a signing a deal. Last, the apparent urgency of PFE may be the recently announced specialty pharmaceutical mergers and any potential expedited crackdown by the U.S. government and/or tax authorities on overseas domicile relocations that take advantage of lower tax rates in certain foreign jurisdictions.

Though short of aggressive expectations of a £60/share takeover value, we feel the potential high-£30s downside price on no deal is something the AZN Board will have to very seriously consider if PFE proposes a deal with a low-mid £50s value. A £46.61 AZN deal value (1/5/14 proposal) is a 23% premium to the unaffected £37.82 AZN close price on 4/17/14 and a 21% premium to the £46.61 AZN prior 20 day average closing price. The initial light price premium is likely the basis to begin discussions rather than an ultimatum; we note that PFE has not disclosed a synergy estimate. Using the initial proposal and assuming $3.75B-$4.5B synergies (~5%-6% of 2014E combined revenues), 4.5% deal debt interest rate (~$30B debt) and a 20% tax rate, we estimate New PFE 2014E P/F $2.42-$2.49 EPS (~8%-11% accretive to standalone PFE $2.24 EPS). Based on PFE’s pre-deal 14x P/E multiple, New PFE would trade in the $34-$35 range. The implied £50/share deal value (1.69 USD/GBP exchange) is a ~32% price premium to the unaffected price. The AZN valuation multiples at £50/share are 13.9x EV/EBITDA (£4.68B, 31% margin) and 20.5x P/E (£2.46 EPS). At $35/share, New PFE would trade at a 10.5x EV/EBITDA multiple ($35.9B EBITDA, 48% margin); PFE pre-deal traded at an 8.6x EBITDA valuation multiple.

AZN has indicated that a larger cash percentage will be required from any further PFE proposals. The 70/30 stock/cash consideration does not seem to be set in stone but rather appears to be a starting point for negotiations. A 50/50 stock/cash deal structure (£26/share cash and 1.4 PFE shares) at a $31.50 PFE price implies a ~£52 AZN value (37% premium to the unaffected price). We note AZN holders are required to receive a minimum of 20% New PFE S/O for the change of domicile, which equates to a minimum ratio of ~1.27 PFE shares (per AZN share). A $35/share New PFE post-deal trading price under this cash/stock scenario implies a ~£55/share value (45% price premium). Assuming $50B deal debt (5.5% interest rate), a $6.5B drawdown of the combined cash and short term investments, and $3.75B-$4.5B of synergies, we estimate New PFE would have 2014E P/F $2.41-$2.49 EPS (8%-11% accretion). The combined entity would have ~3.0x debt/EBITDA leverage (including synergies) and 2.1x leverage including P/F $31B cash and short term investments; PFE should be able to retain an investment grade rating under this scenario.

AZN has weak near-to-mid term growth prospects; negotiating its share of the merger benefits may be more productive than having its Chairman defend the current business strategy and warn of potential social and corporate culture issues. Assuming a $50B valuation for deal synergies ($32M) and lower taxes ($18M), a 50% allocation would be worth ~£12/share. The implied £50/share deal price should be a good starting point for serious negotiations. Given the positive investor reception, the strategic product overlap and the continued consolidation of specialty pharma companies, we expect PFE to make a firm proposal for AZN. In addition, we view AZN’s response as a strong hint to bump the proposed price in order to commence negotiations. While accusations may fly about the poor track record of realizing consolidation benefits the pharmaceutical industry, we expect AZN shareholders will eventually succeed in getting their Board to succumb to a princely deal sum.


 

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RTR- Telefonica sweetens offer to win EU approval for E-Plus deal

Telefonica sweetens offer to win EU approval for E-Plus deal

May 1 (Reuters) - Telefonica Deutschland has sweetened its offer of concessions in order to win European Union approval for its planned takeover of KPN's E-Plus unit in Germany, a spokesman for the German telecoms provider said on Thursday.

"As is usual in such processes, we have now filed a modified remedy package with the European Commission, which is based on the first market test. We cannot comment on any details of the remedies," spokesman Albert Fetsch said.

The EU antitrust authority is now seeking feedback from third parties and has given them until May 5 to do so, a person familiar with the matter said.

Telefonica Deutschland, a unit of Spanish telecoms operator Telefonica, last month offered to lease spectrum and access to its network to rivals after the EU antitrust authority expressed concerns about the 8.6 billion euro ($11.9 billion) deal.

Sources told Reuters the first package was not sufficient to create a fourth mobile operator in Germany to allay regulatory concerns that the deal would reduce the number of operators in Europe's biggest market.