US giant targets UK rival in mega deal

This week a US company has proposed the largest ever takeover of a British firm. It may make money for shareholders, but is it good for the country? Should the government step in to stop it?

In 2010 when the US food company Kraft bought one of Britain’s most famous brands, the chocolate firm Cadbury, prime minister David Cameron declared the takeover ‘heartbreaking’.

Although Cadbury was not by then a particularly British firm (about 80% of its business and over 85% of its employees were already outside Britain) many people shared Cameron’s view – that this was a sad loss of a household name, swallowed up by an uncaring foreign giant.

This week, those feelings look set to rise again. Pfizer, a US pharmaceuticals company worth £116.7bn, has renewed its interest in buying its UK rival, AstraZeneca.

Pfizer wants to reignite a potential $100 billion (£59.4bn) takeover that it originally offered in January. If it happens, it may well be the biggest ever foreign acquisition of a British company; a mega deal, which would result in a mega, hybrid company.

Investors are rubbing their hands with glee at the prospect and shares in Britain’s largest drugmaker have already risen by 14% since the news broke.

But Britain’s drug sector is viewed as a key industry by the government, one of the country’s world-class businesses, and AstraZeneca is ‘the crown jewels’, according to the Financial Times.

It was behind the launch of Breast Cancer Awareness Month 30 years ago, and the company employs about 7,000 well-trained, well-paid people in the country. It also accounts for more than 2% of the UK’s exports. In recent years, it has excelled in developing drugs to treat diabetes and cancer.

But the British public has always been anxious about foreign takeovers, and some politicians have expressed concern over what the deal will mean for British jobs and investment. Pfizer’s last dealings with the UK in 2011 led to the loss of 2,400 jobs when it closed its research and development centre in Kent.

Should the government intervene?

A hard pill to swallow

Some experts firmly believe that politicians should keep out. They should only get involved in a takeover if it threatens national security, they say. Shareholders know more about business than politicians and should be able to do what they want with their assets, including selling them to the highest bidder. Britain’s future success depends on being a buzzing business hub that welcomes foreign investment.

But others are concerned. They fear that the size of this deal will mean Pfizer will cut its UK costs as soon as it goes through. If there is a loss of jobs the government will pay dearly at the next election. Politicians have a duty to ensure that takeovers like these promote jobs and growth, protect British research and skills and guarantee long-term investment for the UK.

You Decide

  1. Should politicians have a say in whether this deal can go ahead?
  2. Is it more important that companies in Britain are British, or that they are successful?

Activities

  1. In groups, list three pros and three cons of foreign takeovers.
  2. Brainstorm ten of the most iconic ‘British’ brands you can think of, with help from our expert links. Do some research and find out who owns them.

Some People Say...

“Business is a combination of war and sport.’Andre Maurois”

What do you think?

Q & A

But does this really affect me?
Yes – this deal affects all of us for a number of reasons. The merged companies would form the largest drug company in the world and one of the world’s biggest businesses. In the future many of us could be dependent on its drugs. Some are concerned that this giant company could force the National Health Service to pay whatever it wants to charge for its products.
OK, is there anything else?
The deal could also affect UK jobs, as a foreign company might safeguard the jobs of its own nationals before those in the UK. Or it might move UK jobs abroad to somewhere cheaper. Some people also argue that foreign takeovers go to the heart of what it means to be British. They alter the character of the country, they say, and their loss affects British morale.

Word Watch

Kraft
It is the world’s second largest food company after Nestle. Products include Dairylea cheese, Toblerone chocolate, Oreo cookies, and Terry’s Chocolate Orange. A year after the takeover, 200 Cadbury jobs were cut, yet £50m was also invested at various plants in the UK.
Pfizer
From 1996 to 2012 Pfizer’s Lipitor, which reduces blood cholesterol, became the world’s best-selling drug of all time, with more than $125bn in sales.
Politicians
Labour has urged caution over the deal, so too has the business secretary Vince Cable who has already been in talks with Pfizer over protecting jobs. Given AstraZeneca’s importance to the UK, Cable could exercise his powers under the Enterprise Act, which allows him to intervene on grounds of public interest.

Subjects

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