Vectura board unanimously accepts Philip Morris’s controversial takeover bid

12 August 2021

Julia Kollewe and Rupert Neate. Source: The Guardian

UK health firm, which makes asthma inhalers, said the tobacco company’s bid was ‘fair and reasonable’

The board of the UK asthma inhaler maker Vectura has unanimously recommended that shareholders accept a controversial £1.1bn takeover bid from the tobacco company Philip Morris International, despite warnings from health charities and public health experts.

In a statement to the stock market on Thursday afternoon, the Vectura board said it considered the terms of the final PMI offer “fair and reasonable”.

The move came despite more than 20 health charities, public health experts and doctors sending a letter to the board urging them to reject the bid.

PMI had raised its bid for Vectura to 165p a share last weekend, valuing the firm at £1.1bn and outbidding a rival £958m offer by the US private equity group Carlyle, which had agreed a takeover of Vectura in late May.

The proposed takeover is now in the hands of Vectura’s shareholders. After PMI has launched its offer document, it has 60 days to win their support for its offer, and needs backing from holders of more than 50% of the shares.

The company’s main shareholders are a series of American investment funds. The largest, with a 6.7% stake, is Brown Capital Management, a Baltimore firm with $18bn (£13bn) assets under management. Founded by Eddie Brown, it is one of the oldest African American asset management companies in the US.

None of the individual funds at the top of Vectura’s shareholder list appear to screen out tobacco, although the fund management companies behind them offer other products targeted at ethical investors.

Invesco markets tobacco free funds, and its website features a petition urging American film companies to make movies targeted at children smoke free.

Vanguard’s website also markets ESG funds, stating that these might involve “screening out the tobacco industry or weapons manufacturers, as well as excluding businesses caught up in human rights or labour controversies.”

Three of Vectura’s largest investors – Axa Investment Managers, TIG Advisers and Berry Street Capital Management – who collectively control 11.2% of the shares had publicly backed the Carlyle bid and are expected not support the PMI offer due to ethical concerns.

The bidding war for Vectura has led to a near-40% spike in the company’s share price and could deliver multimillion pound bonuses for executives. Chief executive Will Downie could receive pay and bonuses of £2.4m this year if the company’s shares rise by more than 50% over the year, according to the company’s remuneration report.

Sarah Woolnough, chief executive of Asthma UK and the British Lung Foundation, said the charities were “extremely shocked and concerned” at the news. “PMI makes billions every year from making addictive products that can cause and exacerbate lung diseases. It’s totally absurd that PMI could make more money from providing treatments to the very people they have made ill in the first place.

“We will continue to oppose this dreadful proposed takeover until a final decision is made. We appeal now to Vectura’s shareholders to make the right and ethical choice and say no to big tobacco.”

The letter to the board, signed by heads of charities including the British Lung Foundation, Action on Smoking and Health (ASH) and the American Lung Association said: “Vectura’s future commercial viability as a company dedicated to improving respiratory health would be seriously jeopardised should the PMI takeover proceed.”

PMI says it advocates a smoke-free future, but still makes about three-quarters of its $28bn in annual revenue from “combustible” products that involve the burning of tobacco.

In its statement, the Vectura board said: “Wider stakeholders could benefit from PMI’s significant financial resources and its intentions to increase research and development investment and to operate Vectura as an autonomous business unit that will form the backbone of its inhaled therapeutics business.”

Danni Hewson, financial analyst at the stockbroker AJ Bell, said: “What comes first, the heart or the wallet? That’s got to be uppermost in the minds of some the City’s most influential investors who’ve just come face to face with a dilemma of mythic proportions. Big tobacco has the bigger bid and Vectura’s board has unanimously recommended the £1bn offer, but can anyone seriously espouse a social conscience and accept this deal?”

Carlyle said on Tuesday it would not raise its 155p a share offer, which valued Vectura at £958m. The private equity firm also insisted it would be a better steward for the company, its employees and patients than PMI. Vectura shares closed at 163.25p.

The shadow health secretary, Jonathan Ashworth, said: “Philip Morris’s attempted takeover of a key player in lung health products beggars belief. It is bitterly disappointing that Vectura have so far failed to exercise duty of care to patients and scientists and reject this takeover by big tobacco.

“This is now a test for Sajid Javid. When we know smoking causes so much serious illness and premature death, it’s time this government takes the right course, stands up to this tobacco giant and blocks this takeover.”

Nicholas Hopkinson, the chairman of ASH and professor of respiratory medicine at Imperial College in London, said PMI had no place in healthcare. “A PMI takeover will ruin Vectura. Doctors will stop prescribing its products, scientists will leave rather than become pariahs and the academic collaboration necessary to drive its progress will cease.”

Vectura was founded by academics at the University of Bath almost 20 years ago and specialises in developing respiratory drugs.