The Financial Times is out with an editorial denouncing Pfizer’s attempted takeover of AstraZeneca. It’s definitely worth a read for the case it makes. What’s a drug company supposed to be doing, anyway?
But (the effect on British research) is not the only big question requiring discussion. Another is the extent to which the board of AstraZeneca – as it decides how to respond to the US group’s overtures – should be driven by the desires of its own shareholders.
One of the most troubling aspects of Pfizer’s bid is its lack of evident commercial logic. The choice of target and the form of consideration seem to be driven principally by the US group’s desire to re-domicile itself in the UK and shrug off certain burdensome American tax liabilities.
The deal will not obviously strengthen AstraZeneca in its pursuit of drug discoveries, or its ability to bring new life-saving compounds to market. Nor will it increase competition or sharpen innovation across the sector.
Pfizer’s dealmaking history is moreover a deeply dispiriting one. The group has a reputation for delivering returns to its investors not through creative management and groundbreaking research, but by the frequent execution of accountant-led, cost-crunching acquisitions.
Comments here to past posts on this deal have raised the same question, and it’s a tough one. If the purpose of AstraZeneca (and Pfizer) is to deliver money to their shareholders, full stop, then the deal makes sense. It will deliver money – of that there seems little doubt. It will deliver that to Pfizer through finagling the tax laws (which the British government has written in the hopes that just these sorts of deals would happen, one would think), and it will deliver it to AstraZeneca’s shareholders by paying them more than their stock was worth a few weeks ago. Money is money, and pecunia presumably non olet. If the discussion is supposed to end there, then there’s not much to discuss.
Is that where it’s supposed to end, though? The FT editorialists, not exactly a bunch that are unfamiliar with capitalism, don’t think so:
The prevailing wisdom in the Anglo-Saxon world over the past 35 years has been that boards should simply respond to what they perceive their shareholders’ wishes to be. But this is incorrect.
Directors have wider responsibilities on which they should reflect before making any recommendation about a company’s future. Legally, their duties under the Companies Act are not simply to snap to attention when shareholders whistle. They are to advance the interest of the business as a whole over the long term.
Just as surely as it is in Pfizer’s financial interest to swallow AstraZeneca, it would seem to be in AstraZeneca’s long-term interests not to be swallowed by Pfizer. They are most certainly not the greatest drug company around, but they deserve a chance to see if they can work out of the pit that time, circumstance, and some of their own decisions have put them into. On a larger scale, Pfizer’s history of acquisition has damaged the entire pharmaceutical industry’s store of R&D ability and intellectual capital.
Some AZ shareholders may well decide that taking Pfizer’s money and running is the right decision – after all, who’s to say if the company is going to make any sort of comeback at all? Better to take the sure thing – many of these investors are managing funds themselves, and they have responsibilities to their own shareholders and customers. But at some point this reasoning breaks down, or at least reveals its limitations. If we’re always going to take the sure thing, the money that can be realized right now, then most startup companies (to pick an extreme example) have no reason to exist. After all, they’re just promising and hoping to deliver something eventually. Better to just close up shop, sell what’s sellable, and return the money to the shareholders, right? Screw the future.
Somewhere in between these extremes lies the “right” answer, and we’re all still figuring it out. It’s not just the drug industry – you can see the same issues playing out with Amazon – the company barely makes any actual profit, and its investors are getting increasingly restless about that. Shareholders have rights, for sure – but do they have all the rights?