Pharma fight: The rules of battle

Pfizer and AstraZeneca logos

Related Stories

Pfizer's proposed acquisition of AstraZeneca would be the UK's biggest takeover. Fears about the impact on jobs and the UK's knowledge economy have reached fever pitch. Politicians are demanding answers. And yet, there is no formal offer on the table - nor any certainty there will be. So what are the rules governing takeovers?

Takeovers: who makes the rules?

The takeover of companies listed on the the UK stock market is overseen by the Takeover Panel. This is a group of financial and legal experts who enforce a set of rules called the Takeover Code.

The code sets a timetable for any proposed takeover, so that a company and its shareholders are not left in a permanent state of uncertainty.

Even though Pfizer has not formally bid for AstraZeneca, when the US firm announced on 28 April that it was interested in buying its UK rival this set in motion a timetable. Pfizer has until 17:00 on 26 May to say whether it will make a firm bid. That said, there is scope for this deadline to be extended.

The code covers a variety of issues, such as disclosure of information, guarantees that a bidder has finance in place, and even, in certain circumstances, the bid price for shares.

Much will depend on whether a bid is agreed (has the backing of the target company's board of directors) or hostile (where the bid is rejected by management, and the predator appeals directly to shareholders).

line break
Can the UK government stop a takeover?

Unlike some other countries, the UK is more relaxed about foreign takeovers. The government has powers to veto certain deals, such as those involving defence and media companies, and apply a "public interest test".

But exercising such powers is rare indeed. Besides, is AstraZeneca really a strategic business? And if making drugs is strategic, why wasn't the UK's car industry?

The government's scope to intervene is also limited by the European Commission. Big mergers and acquisitions - and this takeover would certainly be big - are regulated by Brussels, which generally takes a dim view of national governments trying to usurp its powers over such matters.

It's possible that the UK could try to impose a new "public interest" category to cover the pharmaceuticals or life sciences sectors, or perhaps a wider category to protect jobs. But that process could take several weeks and, in any case, many lawyers believe Brussels would block it. Under EU law, takeovers are examined for their impact on competition, not on jobs.

line break
Cadbury chocolate bars
I thought the UK got tougher powers after the Cadbury takeover?

The 2010 acquisition of Cadbury by Kraft was controversial because the US food giant had promised to keep open a UK factory. But Kraft later backtracked.

That prompted a revamp of the Takeover Code, although just how much tougher the rules became is disputed.

The aim of the changes was to strengthen the hand of the target company, requiring the bidder to give more information on the impact on jobs and strategy. The changes also gave greater importance to the views of employees.

Even though Pfizer has not formally bid for Astra, the US company is considered to have already given a lot of information about its future intentions to continue operations in the UK.

As one analyst told the BBC: "In the battle for hearts and minds, there's no mileage for Pfizer in being secretive about its intentions."

line break
Steel factory
How come other countries can block takeovers they don't like?

Are you thinking of France, perhaps? Certainly, "economic patriotism" seems far more important for France and some other European countries than for the UK.

France famously fended off a foreign bid for Danone, a food company, by declaring that it was strategically important. The government is currently trying to see off GE, a US company, from taking over Alstom - albeit by engineering a deal with Germany's Siemens.

But in France and elsewhere, much of the opposition tends to be sabre-rattling and cajoling - which, admittedly, can be important. And such opposition does not always work. Intense opposition from Paris did not stop India's Mittal Steel from taking over rival Arcelor.

The difference of approach in the UK and some of its European neighbours often comes down to free-market thinking. The UK believes its economy benefits from having a more open-door approach; some other countries think otherwise.

Ultimately, though, France is subject to the same takeover and competition rules as anywhere else in the European Union.

line break
Can a company buy a rival, even if the target firm opposes it?

Most certainly - and it happens frequently.

This issue comes back to the question of hostile bids. When a company makes a formal takeover offer, the board of the target company can either recommend or reject it (or tell shareholders to "take no action"). Ultimately, though, it will be the big institutional shareholders - not the board - that decide who is victorious.

If a hostile takeover is launched, the predator and the target will go into overdrive trying to persuade shareholders, the media, and politicians of the merits of their case. Often, major City shareholders will hold stakes in both companies.

The trouble with hostile bids is that they can be de-stabilising for the companies, the shareholders, customers, and management reputations. Such bids are called "hostile" for a reason.

In the case of Pfizer, its public position is that it has not ruled out any option in its pursuit of AstraZeneca. The US company will be taking soundings from Astra shareholders, but many analysts believe it would difficult to "go hostile" if the UK drugs firm and the UK government was lined up against it.

More on This Story

Related Stories

More Business stories

RSS

Business Live

  1.  
    Saudi oil Via Email

    Benjamin Higgins says "about $15 a barrel". Tristan McCooey, goes with "about 3 dollars per barrel ". Dr Ian McCormick asks: "Isn't it about $4?" All good contributions.

     
  2.  
    08:45: Deutsche earnings
    dbk

    Deutsche Bank has reported a surprise pre-tax profit of €253m in the three months to the end of 2014, helped by an unexpected drop in litigation costs and a rise in trading revenue at its investment bank. Germany's largest lender was able to postpone major legal expenses in the quarter because a number of major cases have yet to be settled, but the threat of future fines still hangs over the lender, frustrating management's efforts to boost profit.

     
  3.  
    Shell earnings Kamal Ahmed BBC Business editor

    As the first of the major oil companies to report its figures for last year, Shell plays the role of the canary in the coal mine - or on the oil rig. After a rather sickly 2013, profits are actually up. But the impact of the low oil price is clearly biting. The company announced that it would be cutting investment over the next three years in new exploration and the development of oil and gas fields, a move that will raise fresh concerns about its business in the North Sea.

     
  4.  
    08:19: House prices
    The sun illuminates property in the historic city centre of Bath

    Nationwide says house price growth got off to a weak start in January with property values up just 0.3% in the month and 3.8% higher than the same month a year earlier. That marks the lowest rates of house price growth for 14 months.

     
  5.  
    Saudi oil Via Email Neil Carter, Business live reader from Devon

    "In the eighties it was one to three dollars a barrel. Today I expect that it is in the region of six to eight dollars. Some newer fields may have higher costs due to higher exploration and extraction costs, so maybe ten to twenty dollars a barrel."

     
  6.  
    07:55: Diageo results Radio 5 live

    "The results today show we are seeing a pick up in momentum," Diageo's John Kennedy tells Radio 5 live breakfast. "If you look at the overall picture... we've seen an emerging market slowdown... but the big developed markets... are performing well despite a muted recovery particularly in Europe." India is performing strongly, as is Mexico, he adds.

     
  7.  
    07:51: Diageo results
    guinness

    Distillers Diageo say profit for the six months to the end of December dropped to £1.36bn from £1.65bn as the pound strengthened and they suffered "lower income from associates and joint ventures".

     
  8.  
    07:41: Shell earnings

    Shell's has also pulled $15bn of investment in oil exploration over the next three years. It says organic capital investment in 2015 is expected to be lower than 2014 levels. "Shell has options to further reduce spending, but we are not over-reacting to current low oil prices and keeping our best opportunities on the table," it adds.

     
  9.  
    07:24: New fund BBC Radio 4

    Nigel Wilson, chief executive of asset manager and insurer Legal & General, says the firm will put £1.5bn for a new infrastructure fund in the UK on Today. "We are very long-term investors - 20, 30, 40, 50, years," he says. Longer-term financing from fund managers like him are the future rather than shorter-term bank lending, he says. Will £1.5bn be enough? He's attracting outside investors and will borrow money to grow the fund to about £25bn.

     
  10.  
    07:15: Royal Mail chairman
    mail

    Donald Brydon will step down as chairman of Royal Mail, the company says. The company is looking for a new one. Mr Brydon will carry on until the firm's annual meeting in the summer.

     
  11.  
    07:10: Shell earnings

    Shell has reported full year earnings (on a current cost of supply basis) of $19bn compared with $16.7bn a year earlier. Fourth quarter earnings were also higher at $4.2bn compared with $2.2bn for the same quarter a year ago.

     
  12.  
    06:58: Eurozone union BBC Radio 4

    Bank of England Governor Mark Carney yesterday said the eurozone needs fiscal union to manage monetary union. James Bevan, an asset manager CCLA, tells Today "a root cause of the problem is absence of growth," low money rates alone won't get growth going.

     
  13.  
    06:48: Shell results
    Car lights are seen streaking past an oil rig extracting petroleum

    Some discussion here on the business livepage as to just how cheap it really is to extract oil in Saudi Arabia. So we thought we'd open it up to the floor. How much do you think it costs Saudi Arabia - per barrel - to extract oil from the ground. Send your answers to bizlivepage@bbc.co.uk or tweet @bbcbbusiness. Usual rules apply: no peeking at the internet.

     
  14.  
    06:38: Shell results Radio 5 live

    How does the lower oil price affect alternative ways of exploring for oil such as shale? Michael Hewson of CMC markets tells Wake Up to Money shale oil exploration is largely dead in the water. Getting shale oil out of the ground is still far more expensive than getting oil out of the ground in Saudi Arabia, he says. What pushed up Saudi Arabia's oil extraction costs was the welfare programme the country introduced when the Arab Spring broke out in 2011. He adds Saudi Arabia can live with a low oil price for a long time.

     
  15.  
    06:23: Shell results Radio 5 live

    "I think there is a good chance that we could see a reduction in [Shell's] dividend and that could affect pension funds here in the UK," Michael Hewson of CMC markets tells Wake Up to Money. He doesn't see that happening just yet, but if the oil price continues to fall, or stays low for a long time, then he thinks it is unavoidable.

     
  16.  
    06:11: Shell results Radio 5 live

    Michael Hewson of CMC markets tells Wake Up to Money he expects Shell's revenues will be slightly lower when it publishes results later this morning. He is, naturally, interested in how Shell is coping with the lower oil price. He doesn't think "we've hit bottom yet" in terms of oil prices. "The Saudi's have still got their foot to the floor in terms of market share," he says. "The low hanging fruit in terms of getting oil of out the ground is gone," he adds.

     
  17.  
    06:01: Apple analysis
    apple

    Apple caught up with Samsung as the world's biggest smartphone seller in the fourth quarter of 2014, thanks to booming sales of its new iPhone 6, market researcher Strategy Analytics said. Strategy Analytics said Apple flogged 74.5 million handsets in the fourth quarter, compared to 51 million a year ago. Samsung shifted the same number, which for them was a reduction from 86 million the previous year.

     
  18.  
    06:01: Matthew West Business Reporter

    Morning. Do get in touch at bizlivepage@bbc.co.uk or tweet us @bbcbusiness.

     
  19.  
    06:00: Howard Mustoe Business reporter

    Good morning everyone. Overnight, McDonald's has said Don Thompson will retire as chief executive of the fast food firm to be replaced by British-born Steve Easterbrook, the company's current chief brand officer. We have house price data from the Land Registry at 09:30 and Shell's results to look forward to. Stay tuned.

     

Features

From BBC Capital

Programmes

  • Virtual courtroomClick Watch

    The 'forensic holodeck’ system that recreates crime scenes as 3D virtual worlds

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.