Pfizer Inc. (PFE) Rumored To Be Eyeing British Giant GlaxoSmithKline plc (ADR)
Pfizer Inc. (NYSE:PFE) went big exactly a year ago when it announced a takeover offer for UK-based AstraZeneca plc (ADR) (NYSE:AZN). The company’s decision to lap up AstraZeneca was seen as opportunistic; it being laced with controversy on many accounts, with some allegations behind the company’s proposition to acquire AstraZeneca not being too well-founded.
The company’s efforts to acquire AstraZeneca did not bear fruit as AstraZeneca continued to reject the company’s advances, ultimately forcing the New York-based giant to back away.
Pfizer, at that time, had stunned the market with its decision because of the sheer size of the target company it was laying eyes upon; AstraZeneca, with a market cap of $90 billion, is among the ten largest companies on the London Stock Exchange (LSE). The company has 50,000 employees.
Pfizer challenged the assumption that AstraZeneca was too big to be eyed for a takeover by announcing an offer that valued each AstraZeneca share at £55, valuing the company at £69 billion. The company actually put a ceiling on the offer by extending £55 directly to the company’s shareholders as a full and final offer, with a bid to not go for a hostile acquisition route. Pfizer, had it been successful in acquiring the company, would have successfully sealed the largest ever foreign takeover of a Britain-based company.
Pfizer, the largest pharmaceutical company in the US, got a surprise with its efforts to go on the aggressive and launch a public bid without AstraZeneca’s board approval. The entire scenario became politically charged as parties on both sides feared potential job losses, criticizing Pfizer for embarking on such an acquisition, merely to save itself from hefty corporate taxes in what could be deemed as a tax-inversion move.
Pfizer’s efforts to allay concerns on both sides of the Atlantic, however, did not reap great results. The company’s attempt to acquire AstraZeneca failed after two months and four offers.
Pfizer, as it appears, is not going to nurse its wounds for long as it is now once again scouting for large-scale mergers, and this time, the company’s target appears to be GlaxoSmithKline plc (ADR) (NYSE:GSK), an even bigger company than AstraZeneca. GlaxoSmithKline employs 115,000 workers all over the world, including 13,000 in the UK, higher than AstraZeneca’s count of 7,000 UK-based workers. GlaxoSmithKline’s roots are undeniably more “British” than AstraZeneca’s, which has ties to Sweden.
Many will be willing to dismiss rumors that Pfizer would go after GlaxoSmithKline; however, we at Bidness Etc believe there is a strong likelihood that these rumors are not ill-founded, considering the company has only paid a fraction of the amount it had outlined for AstraZeneca acquisition, when it acquired Hospira Inc (NYSE:HSP) for $17 billion. The company’s CEO Ian Read has highlighted that Pfizer is still deal-hungry and will go for strategic acquisitions when the opportunity comes up.
We at Bidness Etc are not alone when it comes to holding the said opinion. Kevin Kedra, a New York-based analyst at Gabelli & Co., first highlighted the possibility of such an acquisition for Pfizer when he remarked that Pfizer could look into acquiring GlaxoSmithKline or Bristol-Myers Squibb Co (NYSE:BMY) in an attempt to boost its revenues and earnings.
Pfizer is still desperate to go big with acquisitions so as to reverse its four-year revenue decline that began when its key drugs started losing exclusivity status in the market. The company’s revenue decline began in 2012 when it lost patents for its cholesterol-fighting drug Lipitor. Lipitor’s patent expiration was followed by generic competition for the company’s anti-inflammatory Celebrex, anti-bacterial Zyvox, and Viagra for erectile dysfunction, the other blockbuster drugs for Pfizer. The company now either needs to develop blockbuster drugs through in-house research and development or embark on a strategic acquisition spree to boost its revenues.
Furthermore, the company has billions of pounds sitting overseas which cannot be brought into the US without paying huge taxes. The company is in a dire need to expand its drug portfolio to boost revenues and earnings, especially since the company is expected to lose exclusivity rights for many of its key drugs, including Viagra.
GlaxoSmithKline, despite being huge, is susceptible to a bid especially from Pfizer as it is roughly half its size. The company is weak for other reasons too as it was accused of bribing doctors with expense-paid trips and overprescribing its drugs in China in 2013. The company was also accused of bribing government officials, hospitals, and doctors to sell more of its drugs at higher prices to drive a 13 fold increase in sales out of China. Five of the company’s managers were also convicted of charges as a Chinese court ruled that the company was indeed guilty of committing fraud. The news of the scandal was followed by declines in profits and credit downgrades, putting downward pressure on its share price. GlaxoSmithKline’s share price has slipped seven percent in the past 12 months.
Coming back to Britain for GlaxoSmithKline is undeniably a brave move on Pfizer’s part; especially in light of the fact that the company was sent off to New York whimpering after receiving a strong backlash for its decision to go on the aggressive when it came to acquiring AstraZeneca last year. There is a strong chance that Pfizer’s move to acquire GlaxoSmithKline could be met with strong, yet misplaced, nationalist arguments as Britain tries to save what is authentically “British” from being acquired by a US-based company.
GlaxoSmithKline, alternatively, could try to play hard to get if it were to tap into other smaller companies for acquisitions, making it complicated and cumbersome for Pfizer to acquire the company. It is perhaps for this reason that Bristol-Myers is rumored to be interested in Celgene Corporation (NASDAQ:CELG), valuing each Celgene share at $138. The Bristol-Myers-Celgene merger would be a merger of equals, making Bristol-Myers an entity that couldn’t be easily gobbled by Pfizer just in case the company’s plans to acquire GlaxoSmithKline blow up in its face.
