By Rohan Bansal

Pfizer and AstraZeneca, the two vaccine giants who have been at the forefront of the covid vaccination race, have become household names in the recent past. Being one of the biggest vaccine manufacturers, both have invested enormous sums of money towards their research over the last one year and a half. The race for becoming the leading covid-19 vaccine manufacturer became even more important for these two behemoths given their past history. Not many are aware that back in 2014, US giant Pfizer was in talks to acquire the british-swedish manufacturer, AstraZeneca. Things would have been a lot different had the merger gone through.

It was a major news when Pfizer announced its plans to acquire AstraZeneca in 2014. The deal would have been a watershed in the history of mergers since it involved one of the world’s biggest pharmaceuticals. However, the path to acquire the British giant was laden with a lot of bottlenecks for the US pharmaceutical. Even in 2014, Pfizer greatly outnumbered AstraZeneca in terms of its revenue and size. Many feared, especially the british, that the takeover would lead to excessive concentration of power with Pfizer. The road to the merger also drew in the politicians from both sides. Speculations were rife that the takeover would lead to massive job losses, especially since such incidents were witnessed in Pfizer’s earlier acquisitions.

What lay in the deal for the 2 giants?

America has mostly been in a trade deficit in the pharma sector. This trade deficit is compounded owing to its tax regime. Pfizer, based in the US, sensed that it was at a major competitive disadvantage owing to the USA’s tax implications. It was subjected to a higher tax in comparison with its European counterparts. Many pharmaceutical firms from the states often use the tactic of transfer pricing, in which they shift a portion of their resources and manufacturing to other low taxed countries. And this is precisely what Pfizer had sought to do with its AstraZeneca deal. It was estimated that Pfizer would have saved a staggering 1 billion$ in taxes alone. The deal would also have given Pfizer access to the billions of dollars it had sitting in Europe, thus avoiding a huge tax bill it would incur by repatriating this cash to the US. Also, the new pipeline of drugs that would have come along with the acquisition would have further bolstered its position in the pharma industry.

Coming to the other side of the story, the deal came at a time when AstraZeneca was trailing behind and was looking at a bleak scenario in the near term owing to a removal of patent protection on some of its best-selling drugs. So, going forward with the deal would have been the ideal situation for it.

So, what went wrong?

It could have been a win-win situation for both the pharma giants. But towards the end, it faltered. When Pfizer first announced its plans to acquire AstraZeneca, it offered an opening bid of 50 pounds per share. Albeit AstraZeneca’s share was trading under 40 pounds at the time, many considered Pfizer’s opening pitch to be too low considering the higher ’intrinsic’ value of AstraZeneca’s shares. In the subsequent bidding rounds, the british giant made its intentions clear by stating that it would consider offers worth at least 58.85 pounds a share. In the final round, just 2 hours before the deadline, Pfizer upped its offerings to 55 pounds. AstraZeneca simply refused it, claiming that 55 pounds was severely undervaluing the company. Another major reason for the deal to falter was Pfizer’s seemingly uncharacteristic approach. Pfizer’s main premise rested on tax evasions and other corporate financial benefits, but not the compelling issue of research collaboration or the new pipeline of drugs. As ‘The Guardian’ very simply puts it, ‘Pfizer failed in its takeover bid for AstraZeneca because of overconfidence’.

The other pressing issue which thwarted the deal was the humanitarian aspect. As mentioned above, there were fears of job losses associated with the takeover. The takeover became a political debate as lawmakers in England sought to attack Pfizer’s intentions. This was coupled with the fact that AstraZeneca’s management was particularly sanguine about its future prospects.

The current scenario

In hindsight, one might feel that albeit Pfizer lost the deal back then, it has emerged as a winner now. This is particularly because of the reduced tax rates on the pharma industry by the former US president, Donald Trump. So, what Pfizer was wanting to achieve got catered to a certain extent. AstraZeneca, on the other hand wasn’t able to deliver on its promise of increased revenues over the years.

That being said, in the present covid scenario, both the behemoths have done exceedingly well by delivering the world highly effective and efficient vaccines. Infact, AstraZeneca might have an edge over its rival with its affordable, low-priced vaccines.

A conclusion one can make from this failed deal is that sometimes the deals you don’t make prove to be the better move.