China's Enlightenment of Pfizer's acquisition of AstraZeneca

Source: Pfizer, the world's leading pharmaceutical company on May 6, 2014, recently proposed to acquire British rival AstraZeneca at a price of more than 100 billion US dollars Once the deal was announced, it caused a huge stir around the world After AstraZeneca refused to negotiate with Pfizer, where will the game between the two multinational giants go? What is the impact of cross-strait cooperation in the Atlantic on China's peers, businesses and policy makers? AstraZeneca ranks 10th in the Financial Times' top 500 in 2013 Its position in the UK is about equal to the influence of China Mobile, CNOOC or SAIC in China's economy and society Moreover, as a high value-added, research-oriented industry, pharmaceutical industry is a strategic industry supported by the UK Therefore, the audit and decision-making of No 10 Downing Street is not only of profound significance to China, but also of reference value to a considerable scale of cross-border M & A and to the United States and China Most people in European and American markets believe that the British government may not stop the deal, especially after Pfizer has offered a very attractive olive branch, namely, the registered address of the new holding company after the merger will be moved to London, even though the headquarters and stock trading are still in New York In this way, Pfizer will nominally become a British company, while creating taxes for the country Pfizer chose to do so, which is called to reduce income tax and enjoy the benefits of lower corporate tax in the UK than in the US In my opinion, these are all Pfizer's expedients to get the government's approval Without this, I'm afraid that the deal won't get the support of politicians in London No matter how Pfizer releases goodwill to the British government, after all, AstraZeneca's management will lose the independent decision-making power of the company, which is part of Pfizer, and the road to the demise of the 10th largest group company in the UK may begin The same thing is hard to imagine in China, let alone if someone wants to buy CNOOC and other companies in China's top 10 In 2008, Coca Cola wanted to buy Huiyuan Juice, which even the top 100 companies couldn't get into, but it was strongly opposed by many people with anti-monopoly and national brands, which eventually led to the failure of the transaction Under the background of the trend of globalization and the strategy of "going out" carried out by Chinese enterprises, Kuang Shijing Wei and his mind on the world could not be limited to the land of China for a long time On the other hand, the market is generally optimistic about the deal, and the acquisition of AstraZeneca is a great addition to Pfizer Specifically, in addition to strengthening and improving the global distribution capacity, global coverage and business opportunities of developing countries, the product mix and R & D product line are richer and more competitive In particular, Pfizer understands the benefits of trump, best-selling and heavyweight products better than any other company Many people around the world, not only the Chinese, have never heard of the name Pfizer, but few of them do not know Viagra or viagra It can be said that the brilliance of Pfizer today, the iconic product that has been sold for many years, Viagra, has made great contributions It's no exaggeration to say that several heavy products support a multinational company Moreover, in terms of stock price, Pfizer is still smaller than Johnson & Johnson The current market value of Johnson & Johnson is $284.4 billion, while Pfizer is about $200 billion However, Pfizer's main business is more concentrated in high-end fields such as biopharmaceuticals, and Johnson & Johnson is relatively diversified, involving consumer goods and medical devices With the successful merger of AstraZeneca, Pfizer's "dominant" position in the pharmaceutical industry will be further consolidated, the gap with other companies will be further widened, and the scale effect will be more obvious Pfizer's acquisition of AstraZeneca shocked not only the global market, but also the pharmaceutical industry and enterprises in China In recent years, Pfizer has been ranked first in the sales of Chinese pharmaceutical market, and AstraZeneca, a relatively small company, ranked third in previous years and second after 2013 The threat of the marriage of the eldest brother and the second brother to other companies is self-evident This weight is heavier than that of the international market However, the market share of high-priced and high value-added original research drugs, or patent drugs, which most foreign companies occupy in China, has limited impact on the local industry dominated by relatively high-quality and cheap generic drugs In the face of the strength and scale of the local pharmaceutical enterprises are often dozens of times, hundreds of times of foreign capital, these companies have no living space if they are not operating in the Chinese market For example, if the merger is successful, based on the total market value of Pfizer and AstraZeneca, the value of the new company is about 300 billion US dollars or 1.875 trillion yuan, 31 times the value of Yunnan Baiyao, the largest listed pharmaceutical company in China, which is 59 billion yuan In addition, local enterprises basically do not have the level of research and development of first-class patent drugs, let alone the global distribution capacity and coverage The gap between the two is far, which is like "millet plus rifles" against aircraft, artillery, nuclear submarines However, as the second largest pharmaceutical market in the world, multinational companies are not able to swallow it all For example, the current national conditions determine the uncertainty of policies and regulations, which is not suitable for multinational companies, but an opportunity for local enterprises For example, the recent anti-corruption and commercial bribery, marked by the GlaxoSmithKline incident, made the executives of foreign pharmaceutical companies panic and panic, and local companies have long been used to "having policies and Countermeasures" In addition, foreign investment is also facing the pressure of expiration of patent drugs, the government's demand for price reduction, as well as the difficulty of competition with local manufacturers in new drug approval and bidding In addition, it is obvious that the national policies support local companies For example, the 12th Five year plan clearly states that 1-3 hundred billion level enterprises and 20 ten billion level enterprises should be cultivated Behind the plan is a series of preferential policies Finally, because of the purchase price and payment method, AstraZeneca's board of directors refused to have a discussion with Pfizer Bargaining is human nature It has nothing to do with the size of the company The birth of the world's largest pharmaceutical company may take some time Pfizer is willing to pay a 30% premium to AstraZeneca's share price on the previous day, 30% of which is cash, and the rest are Pfizer shares, that is to say, Pfizer uses more than 30 billion dollars of cash to acquire a company worth 100 billion Compared with some transactions carried out by Chinese enterprises, this is almost useless Chinese enterprises often use all cash, with a premium of more than 50% or even higher We use 30 billion dollars of cash to buy companies with less than half of the value What is worth pondering is that the great game between multinational giants is staged in front of us Can we learn from it and put it to use besides clapping our hands and praising it? As Chairman Mao said, "reading is learning, using is learning, and it is more important learning." (the author of this paper is g bin Zhao, founding partner of Gateway International Group, special researcher of industrial finance research base of Chinese Academy of Social Sciences, consultant of E.J McKay, investment bank)