Merger madness rarely pays off, so why do firms still make these deals?

cepheus

The country doesn't own AstraZeneca.

Somewhat irrelevant, although I expect this won't be enforced with the present government,

Takeovers : the public interest test - Commons Library Standard Note

The Enterprise Act 2002 effected a major reform of the control of mergers and takeovers, removing the decision-making powers of ministers, save in defined exceptional cases, and passing this responsibility to the competition authorities – at the time, the Office of Fair Trading (OFT) and the Competition Commission (CC). Under the Act, the competition authorities are required to assess whether a merger should be prohibited on the basis of whether the merger can be expected to lead to a substantial lessening of competition.

The previous merger regime – established under the Fair Trading Act 1973 – set a broader public interest test for the competition authorities to apply in assessing a merger. In practice the authorities had used competition as the principal test for some years prior to the 2002 Act, but the Labour Government argued that the public interest test was too vague, and should be replaced.

The 2002 Act allows for the Secretary of State to intervene in mergers where they give rise to certain specified public interest concerns: specifically, issues of national security, media quality, plurality & standards, and, financial stability. In these cases the Secretary of State may make an assessment of a merger purely on the grounds that it runs counter to the public interest, without deferring to the ‘substantial lessening of competition’ test, or he may give regard to both tests in coming to a final decision.

despite several major shareholders believing it should be.

Martin Gilbert, who heads Aberdeen Asset Management, one of AstraZeneca's main investors, said Pfizer's takeover bid should be looked at closely because of AstraZeneca's role in British science. "We do have to look at this in UK terms because it is so important for our research and development in the UK, and Pfizer unfortunately has this reputation of being ruthless cost-cutters," he told BBC Radio 4's Today programme.

Veteran investor Neil Woodford has also expressed his confidence in Soriot's ability to deliver an independent future for the company.

IronWolf

Takeovers are an easy way for a CEO to boost his pay packet.

There are some CEO's that are very good at takeovers, like Warren Buffett, and shareholders benefit greatly.

But for the most part, shareholders lose out unless its in a fragmented industry and mergers bring economies of scale.

Thrugelmir

Why does the UK get ripped off?

AstraZeneca is a multinational company in its own right.

I doubt that more than 30% to 40% of the shares are owned by UK investors. Theat's where the problem really lies. The short term nature of UK investing. The UK sells out for a quick buck rather than taking the long term view.

wotsthat

Thrugelmir wrote: »

I doubt that more than 30% to 40% of the shares are owned by UK investors. Theat's where the problem really lies. The short term nature of UK investing. The UK sells out for a quick buck rather than taking the long term view.

I sold out because I thought I could buy long term yield cheaper.

antrobus

Thrugelmir wrote: »

Why does the UK get ripped off?

AstraZeneca is a multinational company in its own right.

....

AstraZeneca was the product of a merger between Astra, a Swedish company and Zeneca, the British bit (the demerged pharma chunk of ICI). It already reports in US Dollars, and is pretty much a global business.

Presumably people regard it as British because it's domiciled in the UK. Perhaps the Swedes have a different view.

antrobus

cepheus wrote: »

Merger madness rarely pays off, so why do firms still make these deals?.

The triumph of hope over experience.

The FT says of Pfizer;

Its financial record is questionable. Despite having spent some $240bn on three big acquisitions since 2000, its market capitalisation is just $185bn today. Meanwhile the Dow Jones index is more than 40 per cent higher.

princeofpounds

Somewhat irrelevant, although I expect this won't be enforced with the present government,

It's not irrelevant.

I'm not arguing with you about the national interest law that you refer to.

I am just saying that it's quite hard to be 'ripped off' when you don't actually own the thing being bought.

It might harm you in other indirect ways perhaps, but let's not kid ourselves that british-domiciled companies are the 'property' of the government. That's a slippery path.

Jennifer_Jane

Nobody very much was crying out when operations were sent off to China and India. Nobody was crying out very much when thousands of jobs in the UK, especially in Cheshire, but also globally, were lost.


AstraZeneca was suffering terribly from a lack of forward thinking (and that was under Sir Tom McKillop's leadership) as patents fell away and generics entered the market. There hadn't been a real blockbuster apart from Crestor, there was nothing in the pipeline. Nexium was an extension from Losec. The Company was full of bureaucracy and it's ability to put drugs onto the market had to go through a spaghetti-like organisation where various functions (and departments were duplicated).


The last CEO, David Brennan, was virtually fired. A marketing man who did nothing to improve the Company's pipeline. Medimmune was bought at too high a price. Everything there was cost reduction, which you can only do to such a monolith as a temporary measure.


They are moving their R&D to Cambridge, so the job position in Cheshire has been reduced anyway. Alderley House now houses other businesses.


When I go into AZ these days, it appears that people are working very hard, but what they all do, I have no idea. Too many e-mails, too many meetings, as always, I suspect.


I hope that people remember (thank you Antrobus) that this is not a British company, it is "Anglo/Swedish" and that if any politicians are considering interfering, then the Swedes should be involved too. It may well be that a Pfizer takeover impacts on the Swedish side far more than on our economy.

chewmylegoff

Generali wrote: »

Not really.

It's bad news for the buying company's shareholders. It has little impact on consumers as the company still operates in much the same competitive environment as it did previously.

Although if Pfizer can transfer its tax domicile to the UK as a result of the takeover, which it appears to be able to, then it can shield large chunks of its global revenue from US corporation tax (in contrast to the US system, no UK corporation tax is charged on dividends received from overseas subsidiaries).

So may be worth paying £100 for something worth £90 if you get a tax saving of £20, which is perhaps the motivation here...

Seabee42

Generali wrote: »

It's generally bad for shareholders in the buying company as they usually overpay.

It's good for shareholders in the selling company as they get overpaid for their shares.

It's great for senior managers of the new, larger company as managers get paid vs turnover rather than profit margins as a rule.

I think a lot of people can see its a tax dodge which is something I dislike even if the role of the directors is to maximise the return to shareholders.

What I find amusing is do you still think the sellers are overpaid if they are given shares in the combined company (i.e. the buyer) instead of cash. Which is now worth less with the value destruction. (Since this is often the offer).