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Pfizer takes a tumble, but that’s not end of story

Pfizer’s defeat is the best news for British industry for a very long time, but it still leaves a lot of unfinished business. In particular there are three issues that urgently need to be determined now, well before the next crunch comes about Britain’s strategic industrial assets. The first is obviously that we need a proper and adequate definition of the public interest written into statute in order to safeguard the key elements of Britain’s national economy. At present the government can only intervene on the basis of the criteria set down in the Enterprise Act 2002, namely on grounds of national security, media plurality and financial stability. In the AstraZeneca case it was an open question whether the ‘national security’ criterion could be used to cover the function of the public interest, and anyway it would have required the approval of the EU Commission under their State Aids rules to agree that the existing legislation could be used in that way. That dubiety is not acceptable, and clearly new legislation is urgently needed to end the uncertainty.

A second requirement is a full-scale debate about who should have the right and responsibility for dediding a company’s fate in the case of a takeover bid. The only reason that AstraZeneca was saved was that the board put up determined resistance, particularly the chairman and chief executive, and at the end rejected Pfizer’s final offer without consulting any shareholders. Pfizer implored the AZ shareholders to rise up in rebellion against the board, but in vain. Two big investors, the investment firm Axa and fund manager Jupiter, did condemn the board’s decision, though other big Asset Management investors took a different view. The obvious question however is, should the shareholders have the last word anyway when their sole interest is short-term profit gains? They care not a fig for the wider public interest or the viability of the British economy as a whole. It makes no sense to leave Britain’s economic future in their hands. At the very least both the government and the workforce should have a clear and significant locus in deciding the final outcome.

The third requirement is that the ‘tax inversion’ motive which was such a strong driver of the Pfizer bid should be reformed. At present the US government has decreed that any profits made overseas by US multinationals will have to pay 35% corporation tax on any of those funds repatriated to the US. Several US companies – and Pfizer is only the last in a lengthening list – have therefore decided to shift their tax domicile to Britain or some other appropriate haven in order to get access to these overseas earnings without paying US taxes. That leads to takeover bids of key British or European companies driven by tax benefits rather than industrial common-sense or national gain. That is a perversion of any sensible industrial strategy. Britain and the EU need to negotiate hard with the US to get this changed.

One Comment

  1. James Martin says:

    It’s highly ironic that the decision to have low corporation tax in the UK to attract international investment has actually led to a situation like this (and there will be others) where aggressive multinationals attempt takeovers of existing UK based companies simply to act as a tax dodge.

    But I will come back again to the central issue here which is not whether a ‘British’ company is better than a ‘US’ one (both are actually owned by international finance if you look at the ownership of the shares anyway), but of why when the nationalised NHS is the biggest buyer of drugs in the world are we dependent on privatised drug manufacturers?

    We desperately need a nationalised drugs manufacturer that like a leading university could also attract the best research talents. We need to link it to other state owned or not for profit drug manufacturers like those in India, South Africa and Cuba. Indeed, when you look at the latter Cuba has not only long been an exporter of cheap or free healthcare to the poor around the world, but has also a good record on research breakthroughs.

    It is a myth that only private profit and greed pushes forward drug research and development, but one that none in the Pfizer/Astra debate appear to have challenged.

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