Pfizer spurned by GSK before Allergan talks http://on.ft.com/1Rqr7NN
Pfizer approached GlaxoSmithKline about a possible takeover in recent weeks but was rebuffed before confirming its talks about a possible bid for Allergan last week.
Three people familiar with the matter told the Financial Times that Pfizer had looked seriously at GSK as a potential target, but the US group’s overtures received a cool reception from GSK and the talks are now dead.
Ian Read, Pfizer chief executive, has since decided to focus on a deal with Dublin-based Allergan as he seeks a large “inversion” deal to lower the company’s tax rate through a foreign acquisition.
Pfizer and Allergan announced last week that they were in “preliminary friendly discussions” about a combination which would create the world’s biggest pharmaceuticals group with a market capitalisation over $300bn.
An acquisition of GSK, with a market capitalisation of about $105bn, would have been on a similar scale to the potential combination with Allergan, which has an equity value of $121bn.
Two people said the talks with GSK did not get far enough for a price to be discussed. GSK’s share price closed at £13.97 on Monday.
GSK and Pfizer both declined to comment.
The US group’s interest in GSK, the UK’s biggest drugmaker by sales and market capitalisation, came 18 months after it failed in a £69.4bn hostile bid for the number two UK group, AstraZeneca. That deal faced heavy opposition from British politicians fearful of the impact on jobs and investment and it was widely agreed that any further attempt by Pfizer to buy a big UK drugmaker would need to be on a friendly basis to soothe domestic concerns.
A takeover of either GSK or Allergan would create controversy in Washington because of Pfizer’s desire to move its official headquarters overseas to reduce exposure to high US corporate tax rates. Allergan paid an effective tax rate of 4.8 per cent last year versus 25.5 per cent for Pfizer.
However, GSK would have presented additional political complications in the UK and the reluctance of its board to engage with Pfizer hardened the US group’s view that a deal with Allergan was more achievable.
For its part, GSK felt emboldened to resist Pfizer’s advances as its performance shows tentative signs of stabilising after a torrid two years of declining sales and a damaging corruption scandal in China. Sir Andrew Witty, chief executive, last week said a recovery was under way when he announced better than expected third-quarter results.
GSK is due to brief investors on the outlook for its research and development pipeline in New York on Tuesday, with Sir Andrew promising details on 40 experimental medicines as evidence that the UK group can overcome decline in its best-selling but ageing respiratory drug, Advair.
Sir Philip Hampton has been on a listening tour of investors since taking over as GSK chairman in May. While he has been left in no doubt about their disgruntlement over the company’s recent underperformance, people familiar with the meetings say he is confident that investors are willing to give GSK time to make its turnround work after a $20bn asset swap with Novartis of Switzerland last year reshaped the group.
Other obstacles to a deal cited by people familiar with GSK included a perceived cultural mismatch with Pfizer and an unwillingness to consider a large volume of the US company’s shares as part of any offer.