Pfizer plans to raise AstraZeneca bid as clock ticks down

LONDON (Reuters) - U.S. drugmaker PFIZER (PFE.NY)Inc is planning to raise its offer for ASTRAZENECA (AZN.LO)Plc as it works with its advisers against the clock in a battle where they have just eight days left to move under British takeover rules.

One person familiar with the matter said news of a better offer than the $106 billion rejected by AstraZeneca on May 2 could come on Monday morning. The Wall Street Journal reported Pfizer was planning to submit a sweetened offer on Sunday.

Pfizer still hopes to get AstraZeneca into negotiations before the May 26 deadline for making a formal bid or walking away. The two companies have yet to engage and there remains a significant gap in price expectations.

The U.S. group wants to create the world's largest drugs company, with a headquarters in New York but a tax base in Britain, and would much prefer a recommended deal allowing it access to AstraZeneca's books.

If it is rejected again it might walk away from the situation - triggering a sharp drop in AstraZeneca's share price - but sources said it had not ruled out a hostile bid.

"Going hostile is the least favorite option, but taking the offer direct to shareholders is a possibility," said one source.

Pfizer's May 2 cash-and-stock offer was worth 50 pounds a share when it was made, but its value has since slipped to around 48 pounds, reflecting a fall in Pfizer's shares.

It was not clear where the improved offer would be pitched but the gap in pricing the company between the two sides was described as "meaningful" and "significant" by sources, suggesting Pfizer will have to make a sizeable jump in price to around 53 to 55 pounds to secure engagement with its rival.

In rejecting Pfizer's May 2 proposal, AstraZeneca argued that the price undervalued it substantially and the offer also exposed shareholders to significant risks, since 68 percent of the transaction would be in Pfizer shares rather than cash.

Chief Executive Pascal Soriot has laid out details of AstraZeneca's promising pipeline of new drugs and argues there is "no inevitability" about the Pfizer deal, although he also acknowledges the board would have to consider a compelling bid.

55 POUNDS "MAGIC NUMBER"

Investors have backed AstraZeneca in rejecting 50 pounds a share but many want it to engage if Pfizer comes back with an improved offer. Two banking sources described 55 pounds as the "magic number" at which a deal could get done.

Pfizer said last week that working with the UK company's board could help deliver "optimal deal terms" for AstraZeneca to recommend to its shareholders.

There has been a mounting political backlash against the proposed deal in Britain, the United States and Sweden, where AstraZeneca has half its roots.

The Swedish government launched a concerted fightback on Friday against a merger it fears will lead to cuts in science jobs and research, echoing concerns aired by British lawmakers at two parliamentary hearings last week and fears for U.S. jobs in states where AstraZeneca has a large presence.

Pfizer's bid would be the largest foreign takeover of a British firm and is opposed by many scientists and politicians who fear it will undermine Britain's science base.

British Prime Minister David Cameron has said he wants more assurances from Pfizer and science minister David Willetts said last week he would like to see longer guarantees on investment than the five years currently promised by Pfizer.

The UK government has also held exploratory discussions with Brussels about strengthening its ability to force Pfizer to honor commitments on jobs and research under European Union rules.

But Cameron, head of the free-market Conservative Party, has also said Britain does not want to be seen to be pulling up the drawbridge to foreign companies.

(Editing by Larry King)

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