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In $100 bln Astra Pfizer fight, R&D site marks political frontline

Source: Reuters - Thu, 1 May 2014 19:44 GMT
Author: Reuters
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* Pfizer bid fuels doubts over Astra's move to Cambridge

* Astra planning new $500 mln research, corporate HQ by 2016

* UK wants Pfizer to commit to site, MPs to probe any deal (Adds comments from science minister, paragraphs 4-5)

By Ben Hirschler

CAMBRIDGE, England, May 1 (Reuters) - In Pfizer's $100 billion battle to win British drugmaker AstraZeneca , business and politics meet in a grassy field on the edge of the historic university city of Cambridge.

This is where AstraZeneca plans to open a new $500 million research and corporate headquarters by 2016 - the centrepiece of CEO Pascal Soriot's plan to overhaul the company and, the government hopes, a new beacon for British life sciences.

Ministers have little ultimate leverage over Pfizer but have insisted in talks this week with the company's boss Ian Read that he push ahead with the planned Cambridge facility if he buys AstraZeneca, according to people familiar with the matter.

"We realise that the medical research community and others are keen that if - and it's not a decision for us to make - this goes ahead that there should be a maximum commitment to R&D in the UK," Britain's science minister David Willetts told Reuters on Thursday.

"It's a point I and (finance minister) George (Osborne) and (business minister) Vince (Cable) all made very clearly to Pfizer."

But Pfizer, which wants to acquire AstraZeneca partly to make cost savings, argues it cannot give any promises on future investment and jobs until AstraZeneca engages in discussions and allows it to see its books.

"We are in early stages and it is premature to speculate on any specific impact this would have on facilities," a Pfizer spokesman said.

AstraZeneca has rebuffed two approaches by Pfizer which is expected to come back with a revised offer before a May 26 deadline for it to "put up or shut up" under UK takeover rules.

The stand-off shows how governments are struggling in the face of a wave of cross-border deal-making involving multinational corporations.

France, with a long history of industrial intervention, is finding it has little room to manoeuvre against General Electric's ambitions to buy the power business of TGV train-maker Alstom.

In Britain, the position is reversed. Here the government champions open markets but behind the scenes officials are fighting hard to ensure an outcome in the national interest.

PHONEY WAR

It is, so far, a phoney war as Pfizer has yet to make a firm bid. But analysts and bankers are in little doubt it will push ahead, either by sweetening the earlier offer to engage the British firm or by taking its approach directly to shareholders.

"History teaches us that Pfizer usually gets what it wants in the end," said Savvas Neophytou, an analyst at brokerage Panmure Gordon, pointing to past successful takeovers of big rivals like Wyeth, Warner-Lambert and Pharmacia.

AstraZeneca said it remained committed to its current strategy, including plans to move 1,600 scientists and 400 head office staff to the new Cambridge site, among them Soriot and his top lieutenants who will run global operations from here.

Whether Pfizer - which already has a Cambridge R&D unit called Neusentis focused on pain and regenerative medicine - will see things the same way is far from certain.

"They're a really good company but I don't know whether they'd want this site," said one local employee with the Medical Research Council, which recently struck a major deal for its staff to work alongside AstraZeneca scientists in Cambridge.

He declined to be identified, given the sensitivity of the issue.

AstraZeneca scientists preparing to move to Cambridge are also nervous - not least because many are relocating from an old research hub in Alderley Park, near Manchester, where house prices are far lower, making the move a major personal financial commitment.

Cambridge member of parliament Julian Huppert said it was essential for the government to take a firm line to safeguard jobs and science skills. AstraZeneca employs 6,700 staff in Britain.

"It's disappointing that Pfizer have so far been unable to give any clear commitment and that has to raise a lot of concerns," he told Reuters.

"The government must extract clear commitments both to the Cambridge move but also to things like advanced manufacturing in Macclesfield. It is very important that we don't lose these skilled jobs."

SCOTSMAN, FRENCHMAN, SWEDE

But the reality is that both drugmakers are very global - as highlighted by the fact that Pfizer is run by a Scotsman, while AstraZeneca has a French CEO and a Swedish chairman in Leif Johansson - so forcing a deal on Pfizer may not be easy.

Nonetheless, there may be some room for give and take. "You could envisage a deal whereby Pfizer commits to Cambridge in some way in exchange for government goodwill, good cooperation with the National Health Service, and so on," said one industry insider.

Britain has been burnt before on foreign takeovers, notably Kraft's 2010 acquisition of Cadbury, when the U.S. food group promised to keep open a key factory, only to go back on the pledge soon after the deal was completed.

Pfizer's reputation is also under a cloud following a decision three years ago to shut most of its research work at a large R&D centre in Sandwich, southern England, where Viagra was invented, with the loss of nearly 2,000 jobs.

As a result, British lawmakers intend to investigate the planned takeover.

There seems little prospect Pfizer will face a bidding war for AstraZeneca. GlaxoSmithKline, Britain's biggest drugmaker which could potentially make the biggest cost savings by combining with AstraZeneca, said on Wednesday it was just an "interested observer".

One reason why Pfizer seems unlikely to face a challenger is that few other companies can match the tax benefits it will be able to extract from buying AstraZeneca.

Pfizer has tens of billions of dollars accumulated through foreign subsidiaries, which if repatriated to the United States would be heavily taxed. Buying AstraZeneca would avoid that, while also providing the chance to re-domicile for tax purposes in Britain, bringing down its corporate tax rate, giving it a big incentive to make sure a takeover gets done. (Additional reporting by Mark Potter and William James; Editing by Anna Willard and Mark Potter)

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