Here is some excellent advice from an old hand to the directors of AstraZeneca should Pfizer, as expected, get serious about bidding and increase its current £48-a-share offer: don't be swayed by the views of investment bankers chasing success fees; don't judge bid premiums based on a two- to three-year view; and remember you have responsibilities beyond price.
"In considering value, directors should be prepared, and it is particularly pertinent in the AstraZeneca case, to take a long-term view, ie seven-to-10 years, of the prospects of the business." Further: "Their responsibility should be to give their honest view of what they believe is best for the company both financially and socially, bearing in mind they have more information on the company than anybody else."
What makes this letter to the Financial Times so interesting is its author. He is Sir Simon Robertson, formerly of Kleinwort Benson and Goldman Sachs and now operating under his own steam. He is one of the leading merger and acquisition advisers of recent times, so he might be assumed to be favourably inclined towards bids and the takeover culture. But his comments demonstrate it's not that simple.
Robertson is right. One dispiriting feature of the takeover game is the way in which defending boards feel swamped by short-term thinking. Directors seem to think any takeover premium, even it looks attractive only on a two or three-year view, must be accepted because the fund managers would wish it.
But fund managers (or most of them) will always prefer a quick-buck because they are incentivised to obsess about their quarterly performance statistics. The job of directors is not merely to echo the prevailing mood among these biased City professionals. The directors' role is to form their own opinions.
The takeover of Cadbury by Kraft in 2010 was a depressing example of a board capitulating under a narrow interpretation of its duties. One minute Cadbury chairman Sir Roger Carr and his colleagues were describing 770p as "derisory", the next they were recommending that shareholders should accept a mere 10% bump to 850p.
"In the final analysis of the deal, it was the shift in the shareholder register that lost the battle for Cadbury," Carr explained later. Yes, that was true – Kraft played a long game, hedge funds piled in, and short-term interests were shouting loudly. But that was no reason for Cadbury's directors to endorse terms that were probably a steal on a longer horizon.
In AstraZeneca's case, boss Pascal Soriot has given an upbeat assessment of the possible riches in the drug pipeline up until 2023, saying revenues could rise by more than 75% over the period to $45bn (£27bn).
His presentation was derided in some quarters for being so long-term as to be irrelevant. But if AstraZeneca's directors feel the forecasts are credible, they should back the executives and the scientists. They should certainly feel entitled to tell Pfizer to go away even if it returns with an offer around the £58-£60 mark. On a long-term view, AstraZeneca stands an excellent chance of getting well beyond that level if the pipeline is as promising as Soriot says.
AstraZeneca directors should also be prepared to say "no" if they think Pfizer would be a poor steward of the assets. Soriot had a fumbling attempt in that direction with his comments on Tuesday about how the distractions of a takeover could cost the lives of cancer patients. His remarks were too crude. But his longer explanation, delivered to the science select committee on Wednesday, made more sense: if Pfizer intends to split up AstraZeneca's research and chemistry units, valuable projects could be binned.
Pfizer would, of course, be free to bid whatever the views of AstraZeneca's board. It could take its pitch directly to shareholders and waive its current condition demanding an unanimous recommendation from the target's board. That's its call. All one asks from AstraZeneca's directors is independence of mind, long-term thinking and a bit of backbone.
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