UK takeover rules block higher Pfizer offer before Astra deadline

U.S. drugmaker Pfizer has left itself no room to return with a higher offer for AstraZeneca before a deadline expires next Monday due to Britain's strict takeover rules, even if the British firm wanted it to, experts say.

Astra, Britain's second largest drugmaker, rejected Pfizer's fourth and "final" offer on Monday, just hours after receiving it, saying the $118 billion proposal still undervalued the firm.

Pfizer, which wants to create the world's largest drugs firm, had described that offer as final and said it would walk away if AstraZeneca did not accept.

But the wording of Pfizer's statement, using terms such as the "final proposal" rather than "offer" and the fact it called on investors to pressure the AstraZeneca board, sowed confusion amongst shareholders and analysts about whether it could still return with a higher offer.

And the shares, while falling 11 percent, still retained some of their bid premium, reflecting a residual hope that the U.S. company could still find a way for negotiations to continue. The Takeover Panel was inundated with calls from investors seeking clarification, sources said.

But one source familiar with the deal said Pfizer could not now increase its offer and described the situation as an "angry stalemate".

A deal strategist at a London brokerage who also asked not to be named said there was not really any wiggle room.

"In terms of the headline number, can they come out and pay 58 pounds tomorrow? No they cannot," the strategist said. "Saying it is final is really explicit."

The only way a deal could take place now is if AstraZeneca shareholders forced the board into a complete u-turn - accepting the current offer.

With the chance of that looking highly unlikely, several M&A lawyers spoken to by Reuters said without that, Pfizer could not return with a higher offer for at least three months.

Pfizer first went public with its intention to buy AstraZeneca at the end of April, immediately raising concerns that any takeover would result in hefty job losses and damage to Britain's scientific base.


Under Britain's takeover regulations, Pfizer then had a 28-day "put up or shut up" deadline to make an offer. That date was next Monday, May 26. Pfizer will have to release a statement by then making clear its intentions.

The rules were tightened after U.S. company Kraft bought Cadbury, a chocolate company that was cherished by most Britons, after a prolonged battle in 2010.

The resulting public outcry, and political accusations that British firms were easy target for hostile takeovers by foreign companies, led to the independent Takeover Panel making changes designed to give more power to the pursued company.

As well as a fixed "put up or shut up" deadline, potential bidders had to be named, and they were required to give more information about their intentions for the business and its employees.

Pfizer, which intended to keep its headquarters in New York but its tax base in Britain, gave a five-year commitment to complete a research center, retain a key factory and put a fifth of the new firm's research staff in Britain.

Despite the promises, the deal met fierce opposition from politicians and AstraZeneca itself, which went as far as to suggest a takeover could result in delays to its drugs pipeline and a risk to life.

"It doesn't look like there's any wiggle-room to try to increase the offer from here," one top 30 shareholder in AstraZeneca said

Under takeover panel rules, Pfizer cannot come back with another offer for six months after the deadline, unless AstraZeneca's board engages in talks. Even if that were the case, it would not be able to raise its offer price for three months after the date.

One way for Pfizer to lift the offer before the deadline ends would be if, under pressure from shareholders, AstraZeneca decided to do a u-turn and engage in talks. The two sides could propose increasing the amount AstraZeneca pays as a dividend as a way to bump up the price, but that also carries risks, lawyers said.

"It's something that could be put to the panel, but I think they wouldn't look favorably on that, because clearly one is supposed to be observing the spirit (of the law)," one lawyer specializing in corporate M&A told Reuters.

"If they see them colluding to get around the final offer statement, which is what AstraZeneca making a major payout by way of a distribution would be, I would have thought the panel wouldn't be happy with that."

(Additional reporting and writing by Paul Sandle; additional reporting by Jemima Kelly; editing by Philippa Fletcher)