Opinion: Astra-Zeneca and a Fairer Society

PfizerThe approach by Pfizer to acquire Astra-Zeneca raises yet again the question of what criteria should be used to evaluate the merits of large international corporate acquisitions.  I would argue that too often the real issues are lost in xenophobic arguments about the loss of national champions – though that is a legitimate concern in this instance.

No compelling rationale for this merger has been put forward.  The Directors of Astra-Zeneca do not see one. Straight forward commercial agreements between the companies to buy and sell individual assets, drugs patents or to share streams of research could achieve the limited rationalisation of operations and the commercial benefits so far claimed.

The real pressure for this merger stems from the financial aspects.  Large tax savings are claimed to be a major benefit. But who will benefit one must ask?  Can it be in the best public interest for a major corporate business to cut its contribution to the commonweal? Is that fair to us, the ordinary citizens who may now be asked to make up the shortfall?

The rewards for the US executives of Pfizer were they to succeed are obvious.  Irene Rosenfeld, CEO of Kraft pocketed a bonus of $22m the year after the acquisition of Cadbury. No doubt the Pfizer Executives have their eyes on similar rewards.

The city advisors are another big winner – their enormous fees are legendary.  True a little of that may trickle back to the exchequer but that would be only a one year gain against the permanent reduction in the corporate tax contributions. We can all see why some would want the deal to happen, but the question they must be made to answer is – what is the public interest in this?  If there is no public gain then why should it be sanctioned?

In the long run acquisitions such as these raise the risks of cartels and monopolies and ultimately the loss of competition results in higher prices being paid by consumers.

There is a growing sense that the ‘system’ is stacked against the common man, the ordinary voter.  Mergers such as this and Cadbury must surely be one of the reasons.  Less competition, lower corporate tax contributions, higher prices, extravagant rewards for a few does, job losses for many, more distant and less accountable management; none of these makes for a feeling of well-being or all being in it together.

Anti-trust legislation provides plenty of scope for denying this take-over.  Competition is the essence of a market, monopolistic powers the antithesis, the enemy of freedom and fairness. Competition keeps companies honest. Competition not economies of scale makes for a Fairer Society.  If we are to make our slogan of a Fairer Society a reality and not just let it be empty words then we need to use our position in Government to stop this merger.

* Mike Biden is an Executive ordinary member in Winchester. A lifelong supporter of the Liberals, he has become an activist since his retirement. His career saw him in senior corporate positions in Sales & Marketing and as a Chief Executive.

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29 Comments

  • David Evershed 6th May '14 - 11:40am

    Liberals have a free trade philosophy. Owners of businesses should be able to make their own decisions about whether they sell their shares to new owners or not.

    There is currently a law which allows Government intervention on national security grounds but there is no justification for government intervention in commercial decisions unless we are to become a Communist State. and suffer the decline this would bring.

    Socialists still have not accepted that capitalism is the worst system apart from all the other systems. There is no place for socialists in a liberal Liberal Democrat party.

  • There is currently a law which allows Government intervention on national security grounds but there is no justification for government intervention in commercial decisions unless we are to become a Communist State. and suffer the decline this would bring.

    Other than when planning permission is required, or the government contracts work to commercial organisation, or government agencies set standards, or when there is a significant dispute between employer or employee, or when drafting business legislation, or equality legislation or health and safety legislation, and so on.

  • David Evershed

    “Liberals have a free trade philosophy. Owners of businesses should be able to make their own decisions about whether they sell their shares to new owners or not.”

    I agree, that does not however prevent criticism of proposed mergers. Many of these large mergers are not actually likely to generate decent returns to the shareholders. Liberals are free to state this and to criticise proposals of such deals, even if we would not want “ban” them.

    I have long suspected that the Tax system in the UK (and elsewhere) is driving businesses to merge and become larger than the economically optimum, If it is the main justification for a merger then something is very wrong in the analysis behind it.

    I recognise large firms buying up small firms (to more quickly expand the use of their innovation), or small firms merging (to generate critical mass that more effectively spreads their developments). However large firms often spend years trying to merge different systems processes cultures, distract management and destabilise staff focus & morale.

    The fact that we believe something should not be prevented does not mean that we should not criticise it when it looks like the wrong approach. As pointed out above there are those who are incentivised to argue for mergers (managers who get to skew their performance measures, advisors who will be paid well) so those of us who believe that the activity will be a distraction from a business doing what is supposed to do (researching to produce products to generate profits for the shareholders) should say so and argue against those who are incentivised in other directions.

  • David Evershed

    “Socialists still have not accepted that capitalism is the worst system apart from all the other systems. There is no place for socialists in a liberal Liberal Democrat party.”

    Well markets and capitalism are the “best of what is available” capitalism without markets is an ugly beast what no liberal should tolerate.

    The distinction is not made often enough. You can have Markets without capitalism and you can have capitalism without markets, but both are sub-optimal and illiberal.

  • David Evershed

    Is this about free trade? I don’t think anyone is saying that the merged business would be prevented from selling its goods….

    What is is about, such as described in the original article, is about companies trying to use money in order to avoid taxation.

    What is driving this takeover, the fact that Pfizer is failing and so wants to patent strip another company in order to paper over its own R&D failings?

    The thing that should concern the Government is that 1 of only 2 companies in the top 30 R&D spenders in the UK would move to a company known for using acquisition to reduce R&D spend. Also, that Pfizer has no loyalty to the UK (Sandwich anyone?).

    I am a liberal and I do not share your view in any way, shape or form

    A UK Government should represent the people of the country, not its companies. It should have the right to intervene justly in order to maintain the long-term diversity of our economy.

    What you are proposing is not so much free trade as laissez-faire – are LD laissez-faire economists.

    Why is it than eveytime I see someone with the Orange LD membership tag recently, I immediately know I am going to read a post based on right wing economic theory – something even Thatcher would have blanched at?

    Is this is what ‘liberal’ means now – if so I am not one and if that means I am a socialist then sobeit

    Matthew Hutbach has commented frequently on the appropriation of the word ‘liberal’ by right-wing laissez-faire libertarian economists – hthis post seems to support this. What should be worrying to the party is the poster is not alone, and many of those who think like him are members of the party.

    Can’t wait to see your 2015 manifesto…..

  • Oh and to add to my last post – who are the owners of these companies?

    Do they have any real interest in the long-term viability or are they just people who are looking for a quick return.

    To say these decisions are only for people who hold shares for a minimum length of time is not something that is something we should promote. In this case the board are not supporting this takeover – on strategic grounds, and I am sure the employees are not that keen either.

    The Government in this day and age of transient share ownership should stand up for the national interest in ensuring companies set up in our country, on the backs of our taxes and taking advantage of our education system and stable social infrastructure behave responsibly

  • bcrombie

    “What is driving this takeover, the fact that Pfizer is failing and so wants to patent strip another company in order to paper over its own R&D failings?”

    I think you are over simplifying. It may be that AZ has a better R&D pipeline than Pfz but there is a trend for large businesses to engage in these mergers or take overs that probably has more to do with the ego and incentives of executives (Fred Goodwin and RBS). A massive merger disrupts businesses to a huge extent and it can take years to make the businesses controllable again (MI needs change, managers use the upheaval to dump activity that makes them look bad and manipulate measures that will allow themselves to look better but not necessarily help the business make better decisions).

    I cannot agree with your suggestion that:

    “It should have the right to intervene justly in order to maintain the long-term diversity of our economy.”

    This is a licence for governments to act on behalf of special interest groups. Governments have shown they are useless at picking winners (especially UK governments) in the form in individual companies or industries. That should not prevent action but to re-focus action.

    Governments do provide physical infrastructure and help with Human capital in the form of education and training. Direct intervention normally results in a specific outcome often heavily influenced by particular lobby groups not necessarily the best outcome. Infrastructure and education/training are often easier to reallocate if the demand for a product has genuinely dried up / a business is not viable.

    Also if there are factors in the tax system or legislation that push businesses to behave this way then Government can resolve these as well.

    Also we all have a responsibility to criticise if think a deal is going to produce a sub-optimal outcome but to do so not the basis of sensible analysis. A distracted, unmanageable business will hit consumers (fewer new products produced as cheaply), Shareholders (poorer returns in the long term), employees (less job security / lower wages in the productive areas) and government revenue (in many ways not just corporation tax).

    We shouldn’t just look at these things through the lenses of UK fiscal policy.

  • Psi

    I do not think it is over-simplification at all. Pfizer has an overseas cash pile it needs to use to avoid US taxes

    As we can see from their results they are struggling and nothing much in the pipeline so buying (it is not a merger, it is increasingly looking like a hostile takeover may be attempted) a competitor allows them to access a better pipeline and existing IP.

    I know many people who worked for Pfizer at Sandwich and they would not trust them with anything. Even their former head of research was very critical of their practices

    I do accept though that the ego of CEO may have a rôle to play but this shows why Government’s should be able to interven if necessary to prevent this

    In part the problem is due to the ownership structures of these big companies. Amoral, transient share speculators take no account of long-term stability

    I am not surprised you are against Government intervention after reading previous posts and I must say I disagree strongly but diverse opinion is always important. Companies are unctrollable at the moment and this will end in tears for us if we do not stand up to them. There is a certain megalomania and arrogance èprevalent in our business people at the moment – with actually very little to back it up in success of their businesses. Happy to increase pay massively but often completely divorced from company performance

    From a personal point of view, I found the comments from Mr Evershed rather annoying that if you are not a laissez-faire right-winger then you are nopt ‘liberal’ and are ‘socialist’. It seems to be the prevailing view of those sporting the LD membership badge now.

    If this is the case then let us wait and see the 2015 manifesto…….

  • Philip Rolle 6th May '14 - 3:56pm

    The government quite rightly has only very limited grounds for intervening in a takeover. Besides, this takeover will increase rather than decrease the tax take in the UK because the merged company will be domiciled here.

    Meddling with corporate matters should be left to socialists.

  • Well, glad to see we stirred up a discussion. As LDs we believe in a Fairer society. If Pfizer saves £11.8bn in races, more than their annual turn-over who w ill fund the shortfall in the public purse? What is the benefit to Society as a whole if Those buying the drugs and paying taxes have to pay more because a few can bend the system to their personal advantage. Free markets always end up with a monopoly and are then no longer free. Where do we draw the line? If a company the size of A-Z cannot retain its independence and it is HUGE – then effectively we are admitting that Parliament is powerless.

  • Philip, that is a beggar my neighbour approach – the race to the bottom. And it is only going to be true for a very short time. Pfizer management are not to be trusted – and in any cases I’ll be replaced by new execs before long. I am an Orange booker on the right of the party but it is time to call a halt.

  • “meddling with corporate matters should be left to socialists”

    i. Is this an extreme Tory website?
    ii. Is this what Liberal Democrats think -really?

    Corporations are one of the biggest risks to our future liberties with their complete disregards for social responsibility – amoral!

    Also, Pfizer want to pay some of their tax here because our tax is less than the States – okay until someone’s is lower than ours. All set up for a race to the bottom.

    A possibly slightly (and don’t pretend it will be anything more than slight) increased tax take will have to be balanced against the likely loss of science base in the UK – even Pfizer’s former head of R&D thinks so

    http://www.independent.co.uk/news/business/news/exclusive-pfizer-insider-warns-that-takeover-of-astrazeneca-could-be-devastating-9318884.html

    Not all corporations are bad of course but I have to say that the examples set since globalisation have hardly shown them in a good light

    If this makes me a socialist then fine – I will leave the LD to the Mark Littelwoods and his friends at the IEA.

    I do not think Cable will stay interested in the party that seems to take its lead from the IEA – I hoped that people who thought like that were a rump but from posts on here it seems that ‘liberal’ has translated to ‘libertarian’ and liberté into laissez-faire!

  • jedibeeftrix 6th May '14 - 6:04pm

    “Can it be in the best public interest for a major corporate business to cut its contribution to the commonweal? Is that fair to us, the ordinary citizens who may now be asked to make up the shortfall?”

    Not our ‘commonweal’, not our problem. I’m not interested in propping up your desire for harmonised taxation that is higher than we might willingly choose to levy ourselves.

  • jedibeeftrix you miss the point – someone has to pay for the education, defence, health, pensions, roads etc. Corporate taxation levels are at an all time low, the result is that personal taxation is at very high levels. Global corporates just play one country off against another, it won’t be long before Pfizer having cashed in the tax allowances from the “costs of rationalisation” and all the other tax breaks avaialble to them in the UK and then watch as they swiftly relocate to Eire where the corporate tax rate is lower again and they have manufacturing plants there to justify it. Sorry to say but your “just don’t get it” and yet it is you who is being used and exploited – along with the rest of us. Believe me I am a small Government low tax man but the Government is there to protect my interests and it needs to act. Glad to seee there are positive developments today..

  • Philip Rolle 6th May '14 - 8:17pm

    Vince has said that the UK is not to be used as a tax haven.

    God’s teeth! What is the point of R & D credits, the patent box, generous capital allowances and low tax rates if we then tell companies wishing to migrate here that they shouldn’t!

    * Right-wing libertarian facepalm…

  • Andrew Colman 6th May '14 - 8:33pm

    There is no better example of greed and corruption than the American healthcare systems., Americans pay twice as much as the British on average for the same level of healthcare. The difference is that the healthcare companies screw the sick for every last cent. The winners are of course big business and there politician and media friends.

    Recently, President Obama has introduced modest reforms but has had stiff opposition. The right wing closed down government for 3 weeks in order to try and stop Obamacare (as its called). Others (claiming to be Christians!) have said Obamacare is the Devils work

    The American corporate establishment hate the NHS and would like to screw the British sick in the same way if they got the chance. Pfizer may be a successful company offering sweet short tem money, but we should not forget its American. What if some tea party nutcase (God forbid) made it to the Whitehouse and decided to use an American monopoly in drugs to extot more money from Britains sick.

    To preserve the NHS, Britain needs a strong drugs industry inder British control. For this reason and the points above, Pfizers take over bid of Astra Zenica should be blocked.

  • Reading the above comments and noting which are party member’s views it can hardly be surprising that the average elector doesnt have a clue what the Liberal Democrats position is on anything at the moment.

  • Andrew Colman 7th May '14 - 11:04am

    From 20 years of attending Lib Dem conferences, I have found most Lib Dems to be close to or to the left of my position. Off course, today, the lib Dems may appear more right wing as they are in coalition and have to compromise with a party to the right.

    Lib Dems are a pragmatic party not controlled by ideology or vested interest like the other two party. When assessing a problem, I and other Lib Dems look for the best solution rather than taking an ideological stance and hoping it will work.

    There are many areas where the free market works very well but there are some exceptions. Healthcare is one. This is because those who need healthcare the most are not the wealthiest , indeed, there is probably an anti correlation. This is in contrast with most consumer goods when wealthy people want bigger faster cars for example. Therefore for this reason and others , a collective healthcare system like the NHS is the optimum way of providing healthcare and figures show ithat its by far the best value compared to other healthcare systems such as that used in the USA.

  • peebee Many more of us are Party members than those exhibiting the bird by our names, you know. So you can probably deduce even less than you think!

  • Philip Rolle writes – “What is the point of R & D credits, the patent box, generous capital allowances and low tax rates if we then tell companies wishing to migrate here that they shouldn’t!” The problem Philip is that Pfizer left! Despite all the items you quote they already closed a facility and “rationalised” their research overseas. They have no loyalty, no commitment and only want to pay less tax and higher bonuses to their senior executives – these are not good enough reasons to be given control of one of our major coroprations. It is claimed by no less than the ex Director of Research of Pfizer that the number of new drugs is directly proportional to the number of research labs – research does not need “rationalising” it needs investment and diversity and this runs totally counter to the commercial incentives of senior executives such as the bosses of Pfizer!!

  • chris j smart 7th May '14 - 4:44pm

    bcrombie and Mike Biden
    I am with you 100% I must be a socialist too. From personal experience in senior manufacturing management with UK and North American companies, it is clear that the days of social responsibility long term strategies by ethical company management has long gone.
    The tale of the frog and the scorpion need to be learnt and government action taken – perfectly illustrated in “The Now Show ”
    http://www.bbc.co.uk/programmes/b041yr8w

  • Mike Biden is right. There is no compelling rationale for this merger – quite the opposite in fact. Pfizer has a very malodorous record as the following links illustrate.

    http://hcrenewal.blogspot.co.uk/2013/12/blogscan-us-supreme-court-turns-down.html

    http://www.bbc.co.uk/news/world-africa-14493277

    Is it really sensible to allow a company convicted by a US jury under RICO statutes to take over an important part of the UK economy? The more libertarian-inclined of those commenting here seem to have missed that a fully hands-off approach leads to collapse not stability as company bosses develop into a latter day version of warlords and start plundering for their own advantage and drive towards whatever maximises profit today, never mind tomorrow. It takes good regulation to prevent that; that some regulation is poorly thought through doesn’t change that.

  • The trouble is that we can ignore all the political posturing by: David Cameron, Ed Miliband, Vince Cable because there is very little they can do to influence or change the outcome; which will be determined by the institutional investors deciding that the monies being offered by Pfizer represent a better return on their investments than holding on to their Astra-Zeneca shares.

    My best suggestion is for the government to rapidly negotiate deals with all UK HQ’d pharmaceutical companies whereby if they cease to be UK HQ’d then they will supply the NHS the drugs it needs at a peppercorn cost to the UK taxpayer…

  • GF

    “Mike Biden is right. There is no compelling rationale for this merger – quite the opposite in fact.”

    I don’t think anyone is arguing that there is a compelling rationale for the merger , simply what is the correct response to this.

  • Simon Banks 8th May '14 - 9:18am

    I do find it disappointing when people make bald statements about what Liberals believe, which clearly are not accepted by all who self-identify as Liberals, and then suggest those who don’t agree should go elsewhere.

    Liberals do on the whole believe in Free Trade, yes. That means working to reduce tariff boundaries. It doesn’t mean refusing to intervene in companies’ practices and shareholder decisions that damage the lives of other people who do not have sufficient power, except through the state, to respond. It was Gladstone’s government in the 19th century which introduced regulation of what the pub trade could sell, regulating beer content and information and stopping the practice of adding salt to make drinkers thirsty. What unacceptable interference in the free market! It was Lloyd George, on his initiative, though as part of a war coalition, who began government regulation of rents.

    There is a danger of mistaking the means for the goal. Liberals believe in individual liberty. Free trade should be seen as one of the means to achieving this. Over-powerful companies are a threat to liberty: look at how Monsanto restricts what farmers can do, purely in its own financial interests. Liberals believe in spreading power and opposing concentrations of power, especially when they’re not responsive to the wishes of the people. Well, elected governments are more responsive to the wishes of the people as a whole than companies, that may make decisions supported (in theory: they probably haven’t been asked) by the shareholders but deeply unpopular with most people affected by them. Some Liberals are in danger of forgetting that the Liberal Party fought to extend democracy to the state, not to render the democratic state powerless in the face of vested interests .#

    It really shouldn’t be disputed that the market, excellent mechanism though it is for most things, has a downside. It thinks short, going for quick profit and ignoring long-term harm, as with climate change. Look at how decisions are actually made by big companies, and you often do see top management valuing making the company bigger over maximising profits, which classical economic theory says they should be concentrating on. They acquire, they pocket a bonus and they move on. Compared to democracy, the market values and empowers the rich and disempowers the poor.

    So it seems to me there is a strong Liberal case for democratic governments intervening when unfettered company decisions risk harm to people who can’t fight back except through their governments, local or national or supranational. That power should be exercised with caution and restraint. Same with all power.

  • bcrombie

    Sorry, my language was sloppy. This is a take over but the point I was trying to make is that mergers and take overs (which after the initial transaction often end up with the same challenges) in a number of large firms seem to serve no value creating purpose (for shareholders, customers or society in general) but certainly enrich management.

    Simon Banks

    “Liberals do on the whole believe in Free Trade, yes. That means working to reduce tariff boundaries. It doesn’t mean refusing to intervene in companies’ practices and shareholder decisions that damage the lives of other people who do not have sufficient power, except through the state, to respond. It was Gladstone’s government in the 19th century which introduced regulation of what the pub trade could sell, regulating beer content and information and stopping the practice of adding salt to make drinkers thirsty. What unacceptable interference in the free market!”

    I think you have the wrong end of the stick here. There are those of us that have a view opposed to governments using powers to “ban” particular deals. Personally I prefer that Governments make laws and not to be given much executive power. The example you refer to is making law not Gladstone going around and telling certain people that a particular pub can’t but ignoring others.

    Some take overs and mergers are very positive but in recent years I have not been convinced by the value created by a number of large firm’s mergers and take overs.

    But in then end the Government should be involved in creating the frame work of transparency and accountability within which take overs happen rather than adjudicating on them individually.

    Roland

    “which will be determined by the institutional investors deciding that the monies being offered by Pfizer represent a better return on their investments than holding on to their Astra-Zeneca shares.”

    And institutional investors should be driven by the long term value that will give the funds a decent return. For example (making a number of assumptions for this case) those investors will have holding in both firms and would need to be sure that the combined group is worth more than their individual holdings separately. That is a high bar, if Pfz has gotten itself in to a position where their pipeline is weak due to under investment then allowing them to take on AZ (if we assume they have a better pipeline due to better investment), will in the long run reduce the value of their total holding.

    Handing a (assumed for the purpose of this example) well managed firm to be run by a less well managed firm is a terrible idea. Add to this the disruption the merging (post take over) of the operations, would just be further damage to the long term investment.

  • Simon Banks

    “It really shouldn’t be disputed that the market, excellent mechanism though it is for most things, has a downside. It thinks short, going for quick profit and ignoring long-term harm, as with climate change. Look at how decisions are actually made by big companies, and you often do see top management valuing making the company bigger over maximising profits, which classical economic theory says they should be concentrating on. They acquire, they pocket a bonus and they move on. Compared to democracy, the market values and empowers the rich and disempowers the poor. ”

    I agree markets are not perfect but to assume Governments are more so is equally wrong.

    Some will be more effective on some occasions and less so on others. An accusation often levelled at governments is that their time horizon is until the next election, companies often have longer terms planning than that.

    Your critique of “Classical Economic Theory” (by which I assume you mean economics before the marginalist revolution in the mid 19th Century) for failing to identify the agency dilemma seems a bit odd.

    Economics for a very long time has been aware of the agency dilemma, very much in the same way it has long been aware of the failings of government as explained by public choice theory.

    If you want to claim the failings of one (the market) is stronger than the failings of another (government) in a particular circumstance you need to provide specific reasons. For example the “market” for pharma share is very used to dealing with the long term investments required and would be different from an industry that is more fluid. You can’t assume investors react the same in all circumstances.

    Thant is not to say the Pharm investors will get it right every time but to assume politicians (who for the most part have no specific knowledge of the industry) know better is a very dangerous idea.

    This deal looks like a bad idea to me but logical factual arguments that demonstrate that it is not “value adding” will be more effective at preventing it than emotional calls to politicians.

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