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Nils Pratley on Saturday AstraZeneca has a strong defence - use it

May 17, 2014

=Is Pascal Soriot a one-in-a-hundred chief executive who dares to say "no" even if fund managers are screaming at him to say "yes"? Believe it when you hear it, of course, but the chief executive of AstraZeneca was quietly impressive this week. As the City licked its lips in anticipation of Pfizer's (inevitable) higher bid, Soriot made a couple of strong points.

First, he emphasised the long-term nature of drug development and pointed to Bristol-Myers Squibb (BMS) as an example of a big pharma company that has improved its share price hugely via clever deals and partnerships and a concentration on fewer therapeutic areas.

Even after a dip this week, BMS's shares have roughly doubled in four years under chief executive Lamberto Andreotti. Soriot is following a similar strategy at AstraZeneca and the suggestion is that shareholders could also be rewarded if only they are prepared to show a little patience - but, crucially, not everlasting patience.

BMS's revenues, like AstraZeneca's, are still roughly flat, but the excitement is generated by the progress in trials of potential cancer drugs. Could AstraZeneca, where the oncology portfolio is also the big swing factor in assessing value, be BMS with a lag of a year or two? It's a plausible line of argument. It also seems to be accepted by some analysts; Citi this week said AstraZencea's "intrinsic value" is pounds 49 a share, which is a pound higher than Pfizer's current offer.

Soriot's second point was that a director's duties go beyond consideration of the headline price of a takeover offer, especially in a deal partly backed by shares. He is clearly wary of Pfizer's strategy of splitting operations into three divisions: "The model where you would split the company in three pieces I don't think would work at all for our business."

Nor does he regard Pfizer's plan to flip its tax domicile to the UK as 100% solid, which is relevant because a deal could take 10 months to complete, and the US political climate on tax "inversions" could turn openly hostile.

Soriot's comments could equally be interpreted as the standard dance of defiance all chief executives perform when an unsolicited bidder is at door. We have seen capitulation follow many times when the bidding hots up.

But AstraZeneca's non-executive directors, with less risk to their careers, should take these arguments seriously and be prepared to dig in their heels if they see fit. John Varley, former Barclays chief executive, doesn't seem the type to defy the City consensus. And chairman Leif Johansson has been alarmingly invisible so far. But how about Marcus Wallenberg, leading light in the prominent Swedish family? Or our own Baroness Vadera, former enforcer in Gordon Brown's administration?

These non-executives should remember that their job is to form their own opinions and consider what's good for the company. If the non-execs want advice, they should read the stirring letter to the FT this week from Sir Simon Robertson, lauded investment banker. "In considering value, directors should be prepared, and it is particularly pertinent in the AstraZeneca case, to take a long-term view, ie seven-to-10 years, of the prospects of the business," wrote Robertson. What's more, they should give a honest view of what's best for AstraZeneca "financially and socially."

Quite right.

=Still on the bid battle, Labour's Chuka Umunna played an interesting card yesterday when he said an incoming Labour administration would look at applying a public interest test to a Pfizer/AstraZeneca deal. It sounded like a harder pledge than he or leader Ed Miliband has given so far.

Wouldn't a takeover, if agreed, be done and dusted before next May's general election? Not necessarily.

The European Commission has to take a look, and the Chinese competition authorities, who tend to move at snail's pace, will also investigate because Pfizer and AstraZeneca are the two of the biggest foreign pharmaceutical firms in China.

The best guess in the City is that completion would take about 10 months - but that's from the point at which an agreement was reached. Next May could conceivably be relevant.

=How nice. The senior executives of Dixons Carphone were so keen to promote the idea that theirs really is a "merger of equals" that they co-ordinated their sartorial look. Neckwear, we must assume, was discarded in a symbolic "bonfire of the ties."

Will the harmony last? The odds are against. The new company will start life with an executive chairman, a brace of co-deputy chairmen, a chief executive, a deputy chief executive, and chief executives of both Dixons and Carphone.

Who is first among equals? It is surely chairman Sir Charles Dunstone since he is the biggest beast in the big boardroom and, as 12% shareholder in the new company, has most riding on its success. Dunstone didn't build Carphone with so many chiefs.

Sooner or later, one suspects, a head or two will have to roll in the interests of clean decision-making. That photo parade seemed like trying a little too hard.

=The Co-operative Group's day of decision is today and committee members should, by now, know where their duty lies. They should back the governance reforms. It is the right thing to do and the Co-op risks meltdown without fundamental change. Then the Co-op must implement the reforms without delay. Foot-dragging by the regional committees after a "yes" vote would also be highly dangerous.


Neck and neck: Dixons Carphone's team. From left, Humphrey Singer, Andrew Harrison, Sebastian James and Sir Charles Dunstone

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Source: Guardian (UK)

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