Pfizer pill, a hard one to swallow

If one were to pick a European nation known for government interference in commercial matters, particularly takeovers, France would probably top most lists.

A burgeoning tally of instances have firmed that reputation. They range from the heavy-handed approach of the French government in the attempts to merge aerospace and defence firms EADS and BAE Systems, to its unsuccessful opposition to the union of Arcelor and Mittal --- and its successful thwarting of Novartis’ attempts on pharmaceutical firm Aventis, and PepsiCo’s on dairy firm Danone.

In the past few weeks, the French government has captured headlines yet again, as it has muscled in on talks between GE and Alstom, over the latter’s power generation business, setting a long list of requirements ranging from job pledges, and, potentially an asset swap, while at the same time encouraging German firm Siemens to make a rival bid.

On Thursday, the French government issued a decree extending the government’s remit for blocking foreign takeovers to further sectors which include energy, transport and water

France’s approach has traditionally been looked down upon by its European neighbours, though as one country is fast learning, touting a lofty laissez-faire policy and acting on it are entirely different things.

Ever since Pfizer launched its hostile approach for AstraZeneca, the British government has been dabbling. First it was accused of “cheerleading” the deal because of the speed with which it welcomed Pfizer’s assurances on jobs and keeping research facilities in the UK (the Financial Times subsequently reported that AstraZeneca’s chairman had had to urge Prime Minister David Cameron to remain neutral).

Now, following a public outcry, it has veered in the other direction, with two parliamentary committees examining the bid.

Business secretary Vincent Cable has pledged to consider revamping the existing “national interest” test that currently gives the government a say over deals in areas such as defence, banking and the media to include research and development.

Even London’s Conservative mayor Boris Johnson, generally a laissez-faire stalwart (in a speech earlier this year he praised Margaret Thatcher’s deregulation of the financial sector in the 1980s) expressed concern over the deal and the need to establish Pfizer’s genuine commitment to British research and development, an industry Britain has devoted much energy to building up over the past decades.

Aberdeen Asset Management, one of AstraZeneca’s largest investors, has joined the unlikely group of those demanding the deal be subject to a national interest test.

There are good reasons for this hesitancy.

Firstly, US firms haven’t set themselves the best precedent when it comes to taking over domestically-prided British companies. Just a week after completing its takeover of Cadbury back in 2010, Kraft reneged on a promise to maintain operations at the Somerdale factory in southwest England with the loss of 400 jobs, as it shifted production to Poland.

Since then the country’s Takeover Panel has strengthened the rules governing mergers and acquisitions, requiring more fixed deadlines in the process, and crucially more disclosures on the bidder’s plans for the target company and its employees. While Pfizer has pledged to maintain 20 per cent of its worldwide research and development jobs in the UK for the next five years, critics of the deal have noted the finite nature of the guarantees, and included a potentially troublesome if “circumstances significantly change” get-out clause.

Crucially on Tuesday, the company’s CEO told one of the parliamentary committees examining the deal that job cuts would be inevitable among AstraZeneca’s near-7,000 strong UK workforce.

The logic of the deal has also come under much fire, with several prominent figures, including a former AstraZeneca CEO insisting it was driven by a favourable tax regime (Britain’s corporate tax rate is set to fall to 20 per cent by next year, significantly below the US, while the country also offers tax credits for research and development). Pfizer would attempt to “suck the lifeblood” out of the company, praying mantis style, he told the BBC .

Pfizer’s own track record in Sweden, where it has a manufacturing and research and development presence, is not helping it in the bid either.

Last week in an interview with the Financial Times, Sweden’s finance minister expressed scepticism over assurances from Pfizer, in view of those made by the US pharma company to the Swedish government during the 2002 takeover of Pharmacia.

In Britain too its R&D commitment is patchy, closing down its research and development division in the town of Sandwich two years ago with the loss of over 1,000 jobs.

Overall it’s raised a number of challenging questions about what constitutes a national champion in an age where jobs are spread across the world and where the line should be drawn on what industries can invoke a national interest test.

Should research and development fall in this category, particularly where life-saving treatments may be involved? And, when it is a tax regime that motivates a deal, can a deal ever claim to be free of a government hand?

Much could happen in the next couple of weeks: under UK takeover rules Pfizer has until May 26 to make a formal bid.

However, the decision of whether or not to act could be taken out of the British government’s hands. The Pfizer move is attracting increased attention in the US, with Congressman Carl Levin planning to bring forward legislation that would block US companies from moving their headquarters abroad to cut their tax bill.

All of a sudden, on both sides of the Atlantic, the French approach to deals isn’t looking as unreasonable after all.