The UK's New Takeover Code Is The Best Thing To Happen In Years

During the course of Pfizer’s (PFE) massive $122.6b play for AstraZeneca (AZN), the new updated UK Takeover Code announced last Thursday, caused nothing but bewilderment.

The stricter rules aimed to create transparency in the acquisitions of British companies. Instead, it had an opposite effect which baffled Wall Street.

Pfizer is down $0.25 (-0.8%) to $29.51 as of noon trading while shares remain high for AstraZeneca which as of noon trading, is up $0.65 (0.9%) to $72.89.

Further confusion arose for investors when Pfizer walked away from its $122.6 billion bid for AstraZeneca on May 26. Ian Read, Pfizer’s chairman and chief executive, said the U.K's Takeover Code was "overly complicated, overly bureaucratic."

Investors and analysts displayed rebellious reaction, bolstered by speculation. AstraZeneca’s shares went up 1.8 percent after Pfizer’s statement, then traders witnessed swings in the stock price due to the strict nature of UK laws and conflicting viewpoint from companies. Analysts were unable to decipher exact outcomes under the guidelines.

It is highly possible the failed deal will be rekindled. With the bid now back on the table, under the takeover rule, Pfizer will be eligible again to bid for AstraZeneca before November. The company stated it would not formally bid for AstraZeneca for six months.

“We continue to believe that our final proposal was compelling and represented full value for AstraZeneca based on the information that was available to us,” said Ian Read.

The collapse of Pfizer’s recent bid for AstraZeneca is an indication of withdrawn M&A’s rising. Pfizer/AstraZeneca’s bid is the second largest withdrawn deal globally on record behind BHP Billiton’s $147.8b withdrawn bid for Rio Tinto in November 2008.

"Relatively slow global economic growth, lack of confidence within the M&A markets and the length of time involved to complete transactions are all factors which may have caused an overall decline in M&A activity during Q1 2014," the ONS said.

The Takeover Panel’s rules are in place to prevent companies from coming under extended siege by hostile acquirers, and to impose order on what can be an unruly M&A market. With the UK Takeover Code, the Pfizer/AstraZeneca deal will be on standstill over the next few months. After 3 months, AstraZeneca has the option to invite Pfizer to re-engage in the takeover. Pfizer also has the opportunity to offer a final bid.

Now, with two scenarios put forth in which Pfizer can bid for AstraZeneca again, just how firm is the moratorium? The UK’s Rule 2.8 statement and the standstill period are mandatory under the updated takeover code. What could possibly happen with the two outcomes remain highly debatable.

Pfizer’s efforts to close a deal with AstraZeneca were linked fear of revenue loss. Revenue concerns for the pharma company may be avoided if approval for its experimental breast-cancer drug is successful. However, rivals Novartis AG (NVS) Eli Lilly and Co (LLY) could pose threat to Pfizer’s sales.

According to Pfizer CEO Ian Read, the company will look into deals of all sizes to ensure that revenue and profits are not only secured but also improved.

Despite the collapsed bid and grapples with significant lawsuits, Pfizer now has alternate plans to now move on. Mylan Inc. (MYL) announced on Wednesday its license agreement to sell its generic version of pain treatment Celebrex, with Pfizer.

On Thursday, Pfizer agreed to pay $325 million in the Neurontin marketing settlement. The drugmakers growth accelerated this year amid rising sales of diagnostics, antibiotics, steroids, vaccines and other products.

You can't always get what you want. AstraZeneca disappointingly lucked out on a huge premium. Going forward, the big pharma company remains in momentum of its operational strategies to also increase profits and growth alongside efforts to gain more market share. It is hoped that Pfizer handles UK’s laws more carefully for the sequel...