AstraZeneca must now deliver on its own promises

PFIZER'S £69 billion bid for AstraZeneca may be dead in the water, for now at least, but the Anglo-Swedish pharmaceuticals giant has some hard work ahead if it is to justify the rejection of its US rival's £55-a-share terms.

Politicians, unions and the scientific community have hailed Pfizer’s defeat as a big win for the future of the UK’s science base, and there is no doubt the AZ board played a good game against their unwelcome suitor. But shareholders are not so happy. The AZ price has tumbled back to £43 a share, still above the £38 or so at which they were trading before the Americans appeared on the scene, but a long way short of Pfizer’s final offer.

On Tuesday, fund manager Schroders added its voice to the chorus of leading shareholders demanding that talks between the two companies be reopened. In a statement that was critical of both AZ and Pfizer, Schroders said it noted "with disappointment, the quick rejection by the AstraZeneca board of the latest offer from Pfizer and the decision of the Pfizer board to draw a premature end to these negotiations by calling their latest proposal final".

Schroders has a 2.1 per cent stake in AZ, making it the group's 12th largest shareholder, and the biggest investor so far to publicly criticise the AZ board. Other major shareholders have been lining up to express their irritation at the ending of negotiations, including Axa Investment Managers, whose Richard Marwood slammed AstraZeneca chief executive Pascal Soriot and his team: "We don't think the management have done a good job for shareholders at all," he said.

At Jupiter Fund Management, Alastair Gunn said the AZ board should have, at least, engaged in "constructive conversation" with Pfizer on the details of the offer, which would have allowed them to assess the opportunities that a combined entity could bring.

But there has also been support for AZ's uncompromising approach, notably from the respected fund manager Neil Woodford, formerly of Invesco Perpetual and who now runs his own Woodford Investment Management firm. Talking to the BBC on Tuesday, Woodford said: "I will make more money for my investors by AstraZeneca remaining independent."

Woodford’s doubts over the deal centered on Pfizer’s lacklustre pipeline of new drugs, concerns over the promised synergies of the move and also its execution risk.

Fidelity Global also came out in support of the board, saying it did not believe Pfizer was a “suitable” partner.

Even those fund managers still urging AZ to return to the negotiating table have expressed serious doubts over the deal, which could take as long as a year to complete.

With tax being one of Pfizer’s prime motivations, the risks include a move by the US authorities to clamp down on companies relocating overseas to avoid tax. Pfizer has never been clear on the exact scale of the tax advantages in the AZ move, but, were it to lose those tax breaks, it’s unlikely it could still make its offer work.

Although Pfizer had upped the cash element in its terms to 45 per cent, that still left over half of the purchase price in shares, and thus subject to a fall in the Pfizer price, as was seen during the brief but frenetic weeks of the takeover battle.

The formal deadline for the end of what would have been the biggest-ever overseas takeover of a British company falls at 5pm next Monday. Under takeover rules, Pfizer is now unable to increase its offer, nor go direct to shareholders. Its last hope is for investors to apply pressure on the AZ board to reopen talks in the next few days.

Having so firmly resisted Pfizer’s aggressive approaches, the AZ board looks highly unlikely to cave in to its own shareholders now, particularly as it was vocally backed in its rejection by a groundswell of public, political and scientific opinion.

Having turned down £55 a share, though, the pressure is on the board of the British group to make good on its promises. During the course of the battle, Soriot made a number of ambitious claims about AZ’s drugs pipeline, and forecast a 75 per cent uplift in sales to $45 billion by 2023, a figure even AZ supporters regarded as extremely optimistic.

The year 2023 is a long way off, but AZ will have to demonstrate its progress well before then if it is to placate its investors. From Monday, Pfizer will be blocked from making another move – but only for six months. After that, it will be free to resume hostilities.

Fiona Walsh is business editor of theguardian.com