UK code confuses players in Pfizer bid

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London and New York - The UK’s updated takeover code was supposed to make acquisitions of British companies more transparent. Instead, it is having the opposite effect.

The stricter rules, in place since 2011, sowed confusion among traders and analysts during Pfizer’s $117 billion (R1.2 trillion) play for AstraZeneca this month.

Conflicting explanations from the firms caused shares to swing as investors tried to figure out just what could happen under the guidelines.

Some traders were puzzled again this week after Pfizer said it would not make a formal bid for AstraZeneca, ruling itself out of doing so for six months. While that so-called Rule 2.8 statement and the standstill period are required under the code, there was debate over just how firm the moratorium is. In fact, there are two scenarios under which Pfizer can bid for AstraZeneca again before November.

“People were super confused,” Mark Schoenebaum, an analyst with ISI Group in New York, said yesterday.

And there were consequences for traders looking to allocate their bets on when Pfizer could try to revive the deal, he said. “It’s highly relevant to a risk arbitrager if they could raise their bid.”

After three months have elapsed, the British company may invite Pfizer to re-enter discussions, or Pfizer can make its own approach with a single knock-out offer it feels sure AstraZeneca would be able to recommend to its shareholders. If that is rejected, Pfizer must wait until the full six months have expired before making a renewed approach.

A representative for the Takeover Panel, which administers the code, declined to comment.

Even before this week’s statement, a debate over the rules moved AstraZeneca shares as the firms issued duelling statements with their conflicting interpretations of what could happen after Pfizer issued its “final” offer.

Last week Pfizer said, “in response to enquiries from market participants”, it was permitted – in certain circumstances – to raise that bid above £55 (R961) a share. AstraZeneca disagreed, putting out its own statement with a different interpretation “following some questions from shareholders”.

Traders who bid AstraZeneca’s New York-listed shares up 1.8 percent after Pfizer’s statement, then saw the stock price swing in the opposite direction after AstraZeneca spoke up.

The updated rules owe their creation to the 2010 hostile takeover of Cadbury by the US company known at the time as Kraft Foods in a battle that lasted months. – Bloomberg


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