AstraZeneca and UK prosperity

AstraZeneca package

Barely a day goes by at the moment when a big British company isn't flogging a big asset or isn't on the end of a takeover bid; and banker chums tell me the "deal flow" (dread phrase for takeovers of companies) looks set to be strong.

The explanation is psychological. The economy is recovering. There hasn't been a big economic whoopsy since the eurozone's banks almost went splat two years ago. And most substantial companies accumulated mountains of low-yielding cash in the years of the Great Recession.

When it comes to investing and buying businesses, companies aren't a good deal more sophisticated than sheep: when they sense the big bad wolf of recession or crisis is over the hill, they all rush in a flock to spend.

Which raises that hoary issue once again of whether companies buying other companies is a good or bad thing, for investors and the wider economy.

There is so much empirical evidence that takeovers regularly damage shareholders' wealth, and yet the bids-and-deals game goes on and on, that it is probably fatuous to expect the owners to exercise caution, and block deals.

As for the economic impact, well it is not cut and dry. Many of the UK's more successful industrial competitors, including the US, see politicians intervene to block or amend deals for national strategic reasons in a way that almost never happens here.

Which begs two questions.

First, whether the government should intervene to frustrate takeovers in a way that hasn't been fashionable for decades.

Or whether the boards of companies in receipt of takeover offers should explicitly take into consideration more than the price being proffered.

Key sector

In the UK, this is once again a semi-urgent issue, following the announcement that the US pharmaceutical giant Pfizer wants to buy AstraZeneca.

This transaction is particularly resonant because AstraZeneca has great intellectual property, it employs significant numbers of scientists and brainy researchers in the UK, and it has important links to top British universities.

The legitimate fear would be that - whatever promises and undertakings are given by Pfizer - over time the deal would hollow out an industrial sector important to British prosperity.

The noises from government are that ministers understand this concern.

But the British industrial convention of the past 30 years is that everything is for sale - and that the UK attracts much more inward investment than other comparable rich countries because it rarely frustrates the operation of the market.

And even if ministers wanted to block the deal, it is not clear they could, on the basis of current competition law.

So what about the directors of AstraZeneca?

The point is that since the great Crash of 2008, caused in large part by short-term, financially driven deal-doing by reckless banks, most big companies have talked the talk that short-term profits and the short-term share price isn't everything.

They all make a big deal of their responsibilities to employees, to customers and to the local and wider communities.

So could AstraZeneca's board cite the interests of these other interested parties or stakeholders to reject Pfizer's offer? Err no. Its primary and overwhelming responsibility is to its owners, the shareholders.

But they could perhaps discuss the effect of the deal on the UK's economic prospects in a full and frank way, so that - if they think the effect would be negative - the public and politicians would know what is genuinely at stake.

If they did not believe there would be a cost to the UK, that would be worth knowing too, of course.

Opening up in this way would be a scary prospect for most boards. Most company directors hate engaging in that kind of public debate.

That said, if they don't do it willingly, there is a strong likelihood they will be compelled to give their views, by MPs on one of a number of relevant select committees.

True defence?

One other thing.

In my too-long experience, bankers, brokers and public-relations advisers working for a target company always want the deal to happen - and that all they are really striving to do, underneath the rhetoric of "defending" the company, is to secure the highest price in an auction.

That is unsurprising, given that typically they receive more millions for their services if the takeover happens above a threshold price set by the board, than if it is not completed.

Which, given the powerful influence of these advisers, on the opinion of investors, media and politicians, means the probability of the deal collapsing is minimal.

Some might therefore argue that advisers should be rewarded for the quality of their advice, not for the outcome.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 21.

    “Its primary and overwhelming responsibility is to its owners, the shareholders.”
    Then if they take the credits why also not take the debits ie costs of unemployment, drop in house prices etc etc, its all take take take but never give give give

  • rate this

    Comment number 20.

    Frankly, in an economy dominated by the City there's little point in raising any concerns over this deal because the Treasury will always do what's in the City's interest not the country's.

  • rate this

    Comment number 19.

    “Its primary and overwhelming responsibility is to its owners, the shareholders.”

    Look at the banks and financial sectors behaviour over the last ten years who all took the “Henry Ford” road (hatred of investors) running the company entirely for his own benefit.

    Like others on here I have also heard rumours about the long term viability of this company…

    Should we let this one go?

  • rate this

    Comment number 18.

    Dare say that this will go through & after it will be revealed what the successful bidder was actually after. Whatever it is you can bet that things such as security of employees jobs will not be on the agenda any more than national benefit to Britain.
    It can't be new products because AZ have given up on research.
    Could it be an asset strip? Or how about patents?
    Who knows?
    Those driving the deal!

  • rate this

    Comment number 17.

    We cannot allow a takeover of a leading company in a sector vital to the UK’s future prosperity which has spent decades building up a Patent portfolio (from v/costly R&D investment) to another USA firm/competitor that will just asset-strip the company (ie: its patents & R&D pipeline & knowledge base)!

  • rate this

    Comment number 16.

    vast majority of jobs in the North will once again be decided by bankers in the South.Its time for London to leave the UK

  • rate this

    Comment number 15.

    The risk is always that the target company is only being bought for its patent portfolio and will be closed down after a suitable period. Having suffered myself from such a case, I wouldn't wish it on AZ employees.
    I can't help wondering if a solution might be to prevent UK patents being bought or owned by non-UK companies? Or if they do, they become invalid.

  • rate this

    Comment number 14.

    @11 Cassandra
    'Hands up all those who can remember the last time the 'Competition commission' did anything newsworthy?'
    that useless quango has been renamed CMA
    as from 1 April 2014.
    can't say that Lord Currie and Mr Chisholm will be any more dynamic than the CC, especially with expertise at OfCom.
    the date of establishment hasn't any significance?

  • Comment number 13.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 12.

    Our Parliament is extremely relaxed about rich people getting richer,so there will be no objections to deals like this in any meaningful way.

    Social consequences will not ever be thought about money is the God ,people dont matter.....

    We will shortly see how much time and effort will be put into stopping the Europe wide Tobin tax affecting the CoL , We will all see who matters most then.

  • rate this

    Comment number 11.

    'British industrial convention of the past 30 years is that everything is for sale'
    The Monopolies and Mergers Commission was only gutted in 1999, and it certainly made a lot more fuss about mergers 'against the public interest' than its replacement did. Hands up all those who can remember the last time the 'Competition commission' did anything newsworthy?
    Maybe it's time to bring back the MMC?

  • rate this

    Comment number 10.

    The System is broken if selling the company earns the merchants more than what is earned by those working at the company.

    Not Fit for Purpose.

    Unless the purpose is to simply make money.
    In which case return to top.

  • rate this

    Comment number 9.

    Beautiful work again Mr Peston.

    You assume immediately that AstraZeneca benefits the UK economy.

    I would like you to INVESTIGATE before just copying the press release.

    1. Do they pay tax in the UK? If so, how much?
    2. Do they receive subsidies from the UK government? If so, how much?

    Please do not call yourself an investigative journalist if you refuse to investigate anything.

  • rate this

    Comment number 8.

    Govt intervention in takeover should only ever be done on grounds of competition or national security.

    We do not own those companies, the shareholders do and if they want to sell their shares they should be allowed to do so.

    Put it another way would you accept the govt deciding you could not sell your house because the buyer was the "wrong sort" of person.

  • rate this

    Comment number 7.

    'British industrial convention of the past 30 years is that everything is for sale'
    too right.
    what am I offered for one worthless government, and several parasitic investment banks and their associated gambling activities?
    too right.
    minus GDP organisations the lot of them.

  • rate this

    Comment number 6.

    "it employs significant numbers of scientists and brainy researchers in the UK"

    AZ's UK facilities:

    There will be 2000 staff moving to Cambridge, but 1200 were ditched at Loughborough. The gap in time means those skils were lost for good. The numbers might sound good but Cheshire also closes - that's 2900 jobs.

  • rate this

    Comment number 5.

    AZ has been winding down it's reasearch for some time. Most of what's left is done "in partnership".

    It's IP is it's only practical asset but they have nothing new coming through.

    Direct employment of scientists (here) is now quite limited. The links to Universities are (from experience) a very cheap form of labour for them, though that's not to deny their social value.


  • Comment number 4.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 3.

    One only has to look at the takeover of Cadbury by Kraft to realize that the promises and guarantees given by the buyer(especially a foreign one) are often worthless and it all boils down to money! Decisions are made abroad for the greater good of the parent company(and country) and the industrial base of the UK is eroded. Cadbury's chocolate has not tasted the same to me since the takeover.

  • rate this

    Comment number 2.

    Evidence please that the compulsive laissez faire philosophy of governments past and present have benefited the economy and the majority of our population. Why not start by having a statutory provision that all take overs must declare an impact statement setting out the likely consequences for the firm and beyond of the takeover.


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