Comment: Pharma deal could be difficult to swallow

FIRST it was the banks, then the energy companies. Now it’s the pharmaceuticals industry that the public loves to hate. Opposition comes in many guises, but it is essentially an issue of size. No-one seems to love a company that gets too big, and the proposed acquisition by US-based Pfizer of AstraZeneca is the mother of all deals. At £63 billion, it would be the biggest takeover of a British company by a foreign firm. Size really does matter. For those in the driving seat – the board – it represents achievement, domination, bigger profits. Investors not only admire this relentless pursuit of growth, they insist on it. But, as we have seen with the banks, growth often becomes growth-at-all-costs and when the pace quickens it risks turning into a stampede which tramples on anyone who gets in the way. This is where government comes in. Last week, MPs questioned Ian Read, chief executive of Pfizer, on the merits of his proposal, and he argued that he would keep jobs in Britain while acknowledging that the merger would lead to job losses across the combined group. He is facing an uphill battle convincing either the lawmakers or the public that Pfizer is a good citizen. It has a ruthless track record and partly justifies its bid for AstraZeneca on grounds of shifting its tax base from the US to the UK which is cheaper, a move that has angered US politicians. While shareholders and the board of AstraZeneca weigh up the financial benefits of the deal, the research industry and academia are joining the health lobby in opposing it. This tie-up, therefore, is typical of a merger that goes beyond commercial consideration. Those demanding that the market should decide are allowing ruthlessness to win the day. So, is a public interest test the way forward? There has always been legislation and regulation to ensure that competition is fair and that acquisitions are in the national interest. The 2002 Enterprise Act removed the decision-making powers of ministers, save in defined exceptional cases, and passed this responsibility to the competition authorities which, at the time, were the Office of Fair Trading (OFT) and the Competition Commission (CC). They were required to assess whether a merger should be prohibited because it might lead to a substantial lessening of competition. Recent takeovers by foreign companies of British firms have prompted calls for a reintroduction of a broader public interest test that existed in the 1973 Fair Trading Act. The takeover of Cadbury by Kraft in January 2010 is a case in point. The issue was also discussed when the OFT and the CC were merged to form a single Competition & Markets Authority, established in April. As things stand, however, their powers remain unchanged. It would seem, therefore, that the markets will decide whether the Pfizer-AstraZeneca deal goes ahead and are now on standby for Pfizer to launch a higher offer. It may go hostile (appeal directly to shareholders) if the Astra board knocks it back a second time. This will be a test of how seriously shareholders are prepared to consider wider concerns than financial value. Stop too far on the bonus bus PAY is once again back in the headlines (does it ever go away?) and this time it does not concern any of the big business battalions. Normally, criticism is restricted to those running blue-chip stock market companies, but Edinburgh has spawned its own public sector fat cat in the form of Lothian Buses boss Ian Craig. Figures released on Friday revealed that Britain’s biggest publicly owned bus operator had paid Craig £1 million over five years. Last year’s £270,000 package for the bus boss was equivalent to the combined salaries of the Prime Minister and First Minister. Public servants deserve to be paid for a job well done, just as much as anyone in the private sector, but as Craig’s job now includes the controversial tramway he will have a job on his hands proving he can justify his pay cheque, which includes a £73,438 bonus. Pay will also be in focus at Marks & Spencer and Tesco this week with Marks & Spencer boss Marc Bolland likely to see his bonus suffer in response to a third consecutive fall in annual profits and face more questions on its new ranges and revamped online service. The picture may be even cloudier at Tesco, whose annual report should confirm that under-pressure boss Philip Clarke will have to get by without any bonus. Virgin on biggest ORGANISERS of the Scottish Business Awards claimed last Monday’s gathering of 1,900 diners was the biggest since 1506, though packing the EICC contributed to the late start and the endless awards also meant a lot of people left before the last were announced. West coasters might be tempted to point out that the Millennium dinner at the SECC allegedly attracted 2,000 guests. Anyway, Monday’s event opened with ITN’s Alastair Stewart questioning Sir Richard Branson though I can’t recall Virgin Money – the sponsor – getting a mention until its boss Jayne-Anne Gadhia spoke. « Twitter: @TerryMurden1