Pfizer and AstraZeneca debate: when “the greater good” matters

The business pages, and now the mainstream media, have been dominated over the last week with news of Pfizer’s proposed $106 billion takeover of AstraZeneca, which would make it the largest ever foreign takeover of a UK company.  Now, a number of politicians have become involved and the arguments are spilling over into a discussion about economic nationalism and protectionism.  As I write the AstraZeneca board has rejected Pfizer’s offer.

The disturbing part of this story is how two companies that are so important strategically to the wellbeing of the world’s population, have been reduced to sabre rattling and boardroom battles.  What we surely need is to take a cold, hard look at the facts and, as former UK industry secretary Lord Heseltine said, subject this potential takeover to greater public scrutiny.  This begs the question: are we equipped with the tools to do this analysis?

What gets lost in the discourse is the role of pharmaceuticals businesses – the global public good generated from their R&D investment, job creation, partnerships with smaller bioscience companies and their relationships with universities and other education institutions, all of which creates value and outcomes that benefit the economy and society.  The relationship between pharmaceuticals companies and government should also be taken into consideration, particularly as AstraZeneca’s continued investment and collaboration with the UK Medical Research Council is a critical part of the UK’s Life Sciences Strategy.

It is also estimated that AstraZeneca, which employs almost 7,000 people directly, supports 30,000 jobs in total.  As the World Health Organization has pointed out, with an ageing population more R&D investment is needed, focused on the future needs of patients.

So there is a public interest in having this debate and understanding whether value would be created from the deal.  The key question, which should be subject to investor and public scrutiny, is: would this deal be value enhancing or not?

So far this debate has only been examined through the narrow prisms of financial value and economic nationalism.  Frankly, we will never find out the answer by using these yardsticks alone.  A balance sheet reports, it rarely reflects.

These are some of the questions I believe should be answered.  Without them I do not think we can make a fair assessment about whether this takeover would create value over time, or not.

• Are AstraZeneca and Pfizer’s strategies and business models compatible?
• Would a strategic partnership or collaboration be more optimal for both businesses?  What assessment has been made of these options?
• What value has been placed on AstraZeneca’s intellectual capital and world leading innovation work?
• What assessment has been made of AstraZeneca’s future prospects with, and without, this deal?
• Would the deal improve the credit rating of the combined business, reduce its cost of capital and boost potential future investment?  What estimate has been made of the impact?
• How will the deal impact on the UK’s Life Sciences Strategy more broadly?
• What assessment has been made of the combined value of Pfizer and AstraZeneca’s scientific and research expertise?
• What would be the strategy of the combined company over a one, three and five year timescale?
• How would the combined group deal with existing partnerships, for example with smaller UK bioscience companies and universities?
• What would be impact on employment, and the expertise within the business?
• What is the estimated cost of merging the operations of the two businesses?
• What assessment has been made of the cost of management’s time in making the deal work, rather than innovating for the greater good?

Are the business and investment worlds equipped to answer these questions?

Listening to the arguments this week, I am more convinced than ever about the global economy needs better metrics – a better understanding and set of arguments and systems – for working out how value is being created and managed over time.  This would enable businesses, particularly in sectors that are so dependent on intangibles to tell their value story, to have a greater defence and protection from bids they feel are unwarranted and undervalued.  It would not just be a defensive measure: it would help the business to build value and trust over the short, medium and long-term.

I detect that underpinning the discourse this week is a frustration – it has been like watching two people who speak different languages trying to communicate with one another.  Perhaps the markets need a new language, a new model, for communicating these factors in a concise and meaningful way.

One of the reasons why commentators are relying on the old arguments is that they cannot access new tools and, more importantly, the information they need to answer the real question I posed above – would this deal create value?   Integrated Reporting, the new global best practice in corporate reporting, has a focus on understanding the value created by inputs, outputs and outcomes – it can be part of the solution.  It results in a business communicating a richer, more fulfilling, set of information about itself so the world can make a more informed assessment of its value and allocate capital more efficiently and productively.

I began this article provocatively.  In truth, I do not blame politicians and the media for crystallising complex facts into simple sound-bites: but we do need to move on from the arguments of last resort and stop perpetuating a debate from the last century.  It is time to wake up to the realities and reason of the 21^st century and recognise that the greater good matters to all of us.