A very bad day for Britain’s reputation as an open economy

Allister Heath

WHAT a waste of time yesterday’s grilling of the bosses of Pfizer and Astrazeneca turned out to be. Many MPs made the most of the occasion to grandstand while displaying a shocking lack of understanding of how business works. Their tone was sneering and cheap, and they treated Astrazeneca far more indulgently than they did Pfizer, making it clear that they weren’t even attempting to be fair.

The low point of the day was a comment from Pascal Soriot, Astrazeneca’s CEO, who implied that a takeover would be a huge distraction and that it would cost lives. “What will we tell the person whose father died from lung cancer because one of our medicines was delayed because... our companies were involved in saving taxes and saving costs?”, he asked. Much rubbish is always spoken during bid battles, but that was unusually baseless.

One could logically surmise that Soriot must therefore be against a takeover on humanitarian grounds, regardless of how much Pfizer were willing to offer, a position which would be at odds with the interest of shareholders – but in fact that is not so. Soriot confirmed yesterday that he would be open to a higher offer.

Does this mean that a low-ball offer would cost lives, but a much better one wouldn’t? Or that lost lives don’t matter as long as his shareholders make enough money? What a mess. It should also be remembered that all listed firms are effectively up for sale and can be subjected to a takeover at any time; that’s a feature of the Plc model, not a bug. If Soriot thinks such a model is too distracting, he should propose a shift to private ownership.

The other “revelations” extracted from Pfizer were meaningless. We were told that there would be job losses. All job cuts are sad, but this wasn’t news. When did anybody ever see a takeover of one mature company by another that wasn’t accompanied by job cuts? Mergers always lead to the elimination of duplicated jobs to bolster efficiency.

Then there was the “news” that the deal was driven – shock, horror – by tax. It is a tragedy that such considerations affect corporate decisions; under a rational, neutral tax system, they wouldn’t. But the UK government is rightly trying to make Britain more competitive so anybody who supports such reforms cannot now protest when companies respond to them.

The simple truth is this. Both Pfizer and Astrazeneca have their pros and their cons; neither have performed especially well in recent years. Both have been cutting jobs. This is not a case of good versus evil. The anti-Pfizer hysteria, the demonisation, the insults, the nonsense about cancer deaths and the nationalism are misplaced.

Shareholders, not politicians, should determine whether Astrazeneca remains independent. Neither outcome would make much difference to the UK, or to its research and scientific base. Research has been moving away from Big Pharma for years and into universities, start-ups and other smaller players. A merger wouldn’t damage the NHS: its purchasing power is vast, and health services internationally could band together to increase their buying power if really necessary.

Pfizer is probably serious that it would keep 20 per cent of all R&D employees in the UK, but that doesn’t give us actual numbers. Given the politics, one can see why it is making these kinds of pledges, and they may even be binding over the next few years, but in reality they are a waste of space. If a UK R&D division doesn’t deliver, it will eventually be axed, pledge or no pledge. The UK doesn’t have a successful car or investment banking industry because foreign owners promised MPs they wouldn’t sack people. Such industries only employ people because they are successful and productive.

All in all, not a good day for rationality – and an even worse one for our reputation as an open, free-trading nation keen on foreign investors.

Follow me on Twitter: @allisterheath

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