There is a view that says that ownership of companies is unimportant, so long as they keep customers and shareholders happy. As yet another successful British company faces the prospect of a foreign takeover, this is a particularly pertinent question for the government. Yet the Prime Minister and Chancellor's enthusiastic cheerleading of Pfizer's aggressive bid for AstraZeneca suggests that they have already made up their minds on what could be the largest ever foreign takeover of a British company. Their 'open doors' policy does not discriminate between those seeking long term investment and those looking for an easy tax haven and a quick profit.
The Coalition is split. Business Secretary Vince Cable MP has declared himself 'open-minded' about intervening in the deal if it is not deemed to be in the public interest. Science minister David Willets MP told the Science and Technology committee that the government has a 'range of powers' to hold Pfizer to account, but the UK's takeover regime is notoriously liberal - put simply, the government of the day can do little to block foreign takeovers, and assurances from the company making the approach are more or less impossible to enforce after the event. The Business, Innovation and Skills committee were more than aware of this during our questioning of Pfizer's management on Wednesday. CEO Ian Read asserted that Pfizer is a company that sticks to its word, but his pledges often lacked detail and seemed to rest on little more than unquantified promises.
Despite changes to the takeover code prompted by Kraft's takeover of Cadbury in 2010, which resulted in the offshoring of hundreds of jobs and the closure of the company's Somerdale factory, it is - with the exception of a few tightly defined restrictions - only shareholders who can ultimately halt the intentions of management boards if they have their sights set on a certain company. Vince Cable has admitted as much. But the Government has still not taken Ed Miliband's offer to work together to strengthen the law on takeovers.
This hands-off approach may boost inward investment in the short term, but this case highlights the long-term consequences for jobs and research in the UK are uncertain, especially in critical industries like pharmaceuticals. The NHS is the biggest buyer of drugs in the world. The UK ranks third globally in its national expenditure on pharmaceutical research. This is a significant private and public investment in public health, which has resulted in medicines developed in the UK going on to save and improve lives all over the world. AstraZeneca say that 70% of new drugs in their pipeline were discovered or developed in the UK. It is only right that the UK taxpayer should benefit when this research is eventually monetised. Moreover, pharmaceuticals are the UK's second biggest export category. AstraZeneca alone accounts for 2% of UK exports, so the Treasury also has a very big stake in the success of UK Pharma and, by extension, AstraZeneca.
This is why the logic behind Pfizer's bid should worry the government. As has been widely reported, Pfizer's principal motivation is tax efficiency, not a major push for new research and innovation. The company is cash rich, and re-domiciling in the UK will allow it to make savings over locating in the US. As Mr Read eventually admitted to the committee, jobs would inevitably be lost in a merger, so an expansion of the company's research base is also off the cards (AstraZeneca themselves already cut jobs when moving their headquarters to Cambridge last year).
Worryingly, the disruption of a takeover of this scale would almost certainly delay life-saving drugs hitting the market, as AstraZeneca chief Pascal Soriot, told the committee. It is also not clear whether this takeover would reduce the potential tax stream to the Treasury over what it already collects from AstraZeneca and Pfizer's UK operations, given that paying less tax is what this deal is really all about.
Pfizer's track record on acquisitions is poor. The companies it has bought in the past have done little for its future growth prospects; the FT notes that over $200bn of acquisitions from 1999 to 2009 saw the stock tumble from £49 to £13 over the same period. Instead of investing in research, cash was simply returned to shareholders.
UK plc should not pay for Pfizer's crisis of innovation. AstraZeneca is a strategically important company to the UK, developing vital drugs both here and around the world. A takeover driven by tax efficiency and cash dividend rather than research and innovation imperils the future of UK science, research jobs, and exports. The government should join with Labour in our call for far more wide-ranging scrutiny of the public interest of a deal like this before Pfizer raises its offer yet again.