Thu | Nov 15, 2018

Interview: Leif Johansson:AstraZeneca's cool head on quest to create value

Published:Wednesday | August 6, 2014 | 12:00 AM
An exterior view of the Two Kingdom Street building which houses the headquarters of AstraZeneca, in the Paddington area of London, Friday, May 2, 2014.-AP

Andrew Ward, Pharmaceuticals Correspondent

Leif Johansson wants to set something straight: he does not want to be prime minister of Sweden.

This was just one of the rumours that swirled round the chairman of AstraZeneca during its takeover battle with Pfizer in May, as shareholders and bankers supportive of the deal questioned his motives for resisting the US drugmaker's £69.4 billion bid.

Two months later, he looks back with wry amusement at claims that political ambitions in his native country explained his reluctance to sell the Anglo-Swedish company. "I've never been in politics, and I don't intend to start now," he says.

Mr Johansson, 62, wants to banish the idea promoted by Pfizer's allies that he and his board were intransigent in their response to the proposal.

Mr Johansson's stance will come under renewed scrutiny in coming weeks as the clock ticks down on a cooling-off period during which Pfizer is barred under UK takeover rules from making a further bid.

While the US company cannot go public with a new unsolicited offer until November, it would be allowed to make a fresh bid in private as early as August 26 - three months after a "final" £55 a share offer was rejected.

Ian Read, Pfizer chief executive, did nothing to discourage speculation about another bid when he said last month that the company continued "aggressively" to look at potential deals.

Should a fresh proposal be made, Mr Johansson and his board would have to decide whether to reopen negotiations or to once again rebuff their suitor, in which case Pfizer would not be allowed to make a further approach until November.

Mr Johansson, in common with all actors in the saga, is constrained by Takeover Panel rules on what can be said about these potential scenarios. But he makes clear that the board is preparing for various eventualities.

"We are in a period where there are many different suggestions coming at us from different places and, as chairman, what you need to do is take the board through different 'what if' scenarios," he told the Financial Times.

Some big AstraZeneca shareholders, including BlackRock and Schroders, made clear they were disappointed by the failure to reach a deal in May.

"Different shareholders have different investment horizons. Some were unhappy. I'm sorry about that, but we engaged [with Pfizer] as much as we could have been expected to and we had good communication with shareholders."

Did he feel embattled? "I am a mild-mannered Swede, but I am also fairly strong minded and cool headed, so heat like that doesn't have much effect on me. I try to focus on the real issues."

For Mr Johansson, the real issue was how to value a company whose prospects are dependent on promising but unproven experimental drugs - and whether their success would be accelerated or imperilled by a big merger. These questions will again dominate should Pfizer return. "The way to create value in this industry is to get medicines to market as quickly as possible. The question we had was whether this was the best way to do it."

Another concern was the political risks surrounding Pfizer's plan to use the deal to move its tax domicile to the UK. This would have made it the biggest in a wave of so-called "tax inversions" by US companies looking to escape high rates.

Scrutiny of such deals has since intensified in Washington, with President Barack Obama criticising "corporate deserters" who show a lack of "economic patriotism".

"We always said inversion was a risk or a controversial issue," says Mr Johansson. "We are seeing a little of what we expected."

However, Mr Johansson insists there was never "a message that we would not sell at any price". Indeed, the board publicly declared it would have been open to negotiations at a price 10 per cent above Pfizer's final offer - implying £58.50.

This gives Pfizer a good indication of what would be needed to bring AstraZeneca to the table, although Mr Johansson says valuations are always a moving target in the drugs industry. "As new science breaks, it creates new value."

As a top executive and, more recently, chairman at big European companies for more than three decades, Leif Johansson has seen plenty of ups and downs in global business.

He feels encouraged by gradual recovery and reform in European economies after the financial crisis, but worried about new risks.

Mr Johansson pointed to growing instability in the Middle East and Argentina's debt default. "I wouldn't say it is much worse than we have seen in the past and the world is still becoming more wealthy and globalised," he says.

"But whenever you have political uncertainty it affects sentiment on investment."

A potential UK exit from the EU is another concern for the chairman of AstraZeneca, the UK drugmaker, and Ericsson, the Swedish telecoms equipment group. "I am mostly behind what the UK is saying [about the need for EU reform] from a business point of view, but I would certainly warn against exit."

Mr Johansson retired from day-to-day management when he stepped down as Volvo chief executive in 2011. How much longer will he remain in his boardroom roles? "I have not set any deadlines," he says. "But shareholders might."

(c) 2014 The Financial Times Limited