Pfizer's acquisition of AstraZeneca's Chinese inspiration

Leading the world pharmaceutical industry: Pfizer Inc. of the United States recently proposed to purchase British rival AstraZeneca over US$100 billion in price. This transaction triggered an uproar on the global scale. After AstraZeneca declined to negotiate with Pfizer, where would the game between the two transnational giants go? The cooperation between the two sides of the Atlantic may reshape the shock of the industry structure, and what impact will it have on Chinese counterparts, business circles, and policy makers?

AstraZeneca ranked 10th among the top 500 UK Financial Times in 2013. Its position in the UK is approximately equivalent to the economic and social influence of China Mega Group, China National Offshore Oil Corporation, or SAIC Group. Moreover, pharmaceuticals, as a high value-added, research-oriented industry, are strategic industries supported by the UK. Therefore, the review and decision of 10 Downing Street will not only have far-reaching significance for the country, but also provide reference value for a considerable amount of cross-border mergers and acquisitions and for the United States and China.

Most European and American market participants believe that the British government may not stop this transaction. In particular, after Pfizer has thrown a very attractive olive branch, the registered address of the merged new holding company will be relocated to London, even if the headquarters and stock transactions still in New York. Since then, New Pfizer will nominally become a British company and at the same time create revenue for the country.

Pfizer chose to do so, its name is to reduce income taxes and enjoy the benefit of the British company tax is lower than the United States. The author believes that these are expedient measures for Pfizer's approval of the government. Without this, I fear that transactions will be difficult to get support from London politicians.

Regardless of how Pfizer gave the British government goodwill, after all, AstraZeneca’s management will lose the company’s autonomy in decision-making and be part of Pfizer. The road to the demise of the UK’s 10th largest group of companies may begin. It is hard to imagine the same thing in China, let alone if someone wants to acquire China's top ten companies such as CNOOC. In 2008, Coca-Cola wanted to acquire Huiyuan Juice, which could not be entered by even the top 100 companies. It was even met with strong opposition from many people to antitrust and national brands, resulting in failure of the transaction. Under the current trend of globalization and the implementation of the "going out" strategy by Chinese enterprises, the world has long been unable to confine itself to China.

On the other hand, the market is generally optimistic about this transaction, the acquisition of AstraZeneca is even more powerful for Pfizer. Specifically, in addition to strengthening and improving global distribution capabilities, global coverage, and commercial opportunities in developing countries, product portfolios and R&D product lines are more abundant and more competitive.

In particular, the latter, Pfizer than any company understands the interests of the trump card, best-selling, heavyweight products. Many people around the world, not just Chinese, have never heard of the name "Pfizer," but very few people do not know Viagra or "Viagra." It can be said that today's brilliant Pfizer, the iconic product that has been selling well for many years can be attributed to it. It wouldn't be an exaggeration to say that a few big products hold up a multinational company.

Furthermore, Pfizer is currently smaller than the US Johnson & Johnson Co., Ltd. in terms of market value of stock prices. Johnson's current market value is 284.4 billion U.S. dollars, and Pfizer is about 200 billion U.S. dollars. However, Pfizer's main business is more concentrated in high-end fields such as bio-pharmaceuticals. Johnson and Johnson are relatively diversified, involving both consumer goods and medical devices. With the successful merger of AstraZeneca, Pfizer’s position as “dominant” in the pharmaceutical industry will be consolidated, the gap with other companies will further widen, and the scale effect will become even more apparent.

Pfizer's acquisition of AstraZeneca is not just a shock to the global market. Its influence on China's pharmaceutical industry and its businesses is also impressive. Because Pfizer has been ranked first in the Chinese pharmaceutical market in recent years, the smaller AstraZeneca ranked third in the past few years and jumped to second place after 2013. The marriage between the boss and the second child, the threat to other companies is self-evident, this component is heavier than the international market. However, the high-priced, high-value-added original research medicines or patented pharmaceuticals market that foreign-funded companies occupy in China mostly have limited impact on local industries dominated by relatively inexpensive generic drugs.

In the face of strength and scale greater than the local pharmaceutical companies dozens of times, hundreds of times the strong enemy of foreign capital, if these companies are not operating in the Chinese market, there is no room for survival. For example, if the merger is successful, the new company is worth about US$300 billion, or 1.875 trillion yuan, based on the combined market value of Pfizer and AstraZeneca, which is 31 times the value of Yunnan Baiyao, the largest listed pharmaceutical company in China. In addition, local companies basically do not have the level of research and development of first-class patented drugs, let alone global distribution capabilities and coverage rates. The gap between the two is far-reaching. They say that exaggeration is like a "millet rifle" against aircraft artillery nuclear submarines.

However, as the world’s second largest pharmaceutical market, China’s multinational companies are not able to swallow them all. For example, the current national conditions determine the uncertainty of policies and regulations, which is incomprehensible for multinational companies, but it is an opportunity for local companies. For another example, the anti-corruption and commercial bribery that took place in the recent past as a symbol of the GSK incident made panicked and sloppy executives of foreign drug companies. Local companies have already become accustomed to “policy and countermeasures”.

In addition, foreign capital is also facing the expiration of patented drugs and the pressure from the government to lower prices, and it may be difficult to compete with local manufacturers for new drug approvals and tenders. In addition, it is obvious that national policies support local companies. For example, China's “Twelfth Five-Year Plan” clearly stated that it will cultivate 1-3 billion-level enterprises and 20 10-billion-level enterprises. Behind the plan is the strong support of a series of preferential policies.

Finally, AstraZeneca’s board of directors refused to talk to Pfizer because of the purchase price and payment method. Bargaining is a human condition. Regardless of the size of the company, the birth of the world's largest pharmaceutical company may take some time. Pfizer is willing to pay 30% of AstraZeneca's previous day's stock trading price premium, 30% of which is cash, and the rest is Pfizer shares, which means that Pfizer has purchased more than 100 billion US dollars in cash to a company worth 100 billion. This contrasts with some transactions conducted by Chinese companies. Chinese companies often use all cash, and the premium is more than 50% or even higher. We use $30 billion in cash to buy up to less than half of the companies.

It is worth pondering that the great game between transnational giants is being lived in front of us. Can we learn how to use it in addition to applauding? As Chairman Mao said, "Reading is learning, and use is learning, and learning is more important."