Business Acquisition

Pfizer Inc. and Moderna, Inc. (MRNA)

Provide a brief background introduction to both the company that you are working for and the company you are responsible for gaining control over.

Pfizer is a leading research-based pharmaceutical firm that made headlines in the search for the Covid-19 Vaccine. The company was founded in 1849, and its headquarter is in New York, USA. It is listed on New York Stock Exchange (PFE) and NASDAQ (Pfizer, 2021). Pfizer produces medicines for oncology, metabolism, cardiovascular health, immunology, metabolism, and inflammation. The company fetches over $1 billion annually from the over ten products they make, such as Viagra, the Covid-19 Vaccine, and pneumonia vaccine Prevnar among other products. Pfizer operates globally and receives around 55% of its annual revenue from international clientele (Pfizer, 2021). For this research, Pfizer will be acquiring 100% of the voting stock of Moderna Inc., an American pharmaceutical company and biotechnology Company focusing on drug development, drug discovery, and vaccine technologies exclusively based on Messenger RNA (mRNA). The company headquarters is in Cambridge, Massachusetts. Moderna Covid-19 was authorized for use in the United Kingdom, Canada, and Europe. However, despite the discovery, Yahoo Finance reported a -1.47% decline in the company’s share value as of January 22 2020 (Yahoo, 2021). Thus, this paper explores the consequences of Pfizer acquiring 100% voting Stock of the dwindling Moderna, Inc. *mRNA.

Specify the overall manner in which the acquisition fits into your company’s strategic direction.

Why acquiring Moderna, Inc. (MRNA) is strategic to Pfizer.

Moderna’s and Pfizer’s contributions and journey towards the invention of Covid-19 are eerily similar. While Pfizer is a pharmaceutical giant, Moderna is a biotech firm that has never developed any drug in the market. Thus, though acquisition may meet resistance, its success would be one of the greatest strategic achievements of Pfizer.

Pfizer Chief Operating Officer, Albert Bourla, described that Pfizer’s main goal is to develop and deliver critical medicines to clients globally (Pfizer, 2021). This has remained the compass of what Pfizer does, and this operational design has often given Pfizer the compass of what the company invests in. This structure has always enabled Pfizer to optimize its distinct growth opportunities while simultaneously providing future flexibility that broadens the company’s growth opportunity to enhance value. In hindsight, the Acquisition of Moderna fits Pfizer’s strategic growth direction since acquiring the company will not only provide value to the company but also improve research development on the current Covid-19 Vaccine. Moderna’s vaccine is more comfortable to handle and store as compared to Pfizer’s. The acquisition of Moderna will help the company dominate the immunization process and improve its overall efficacy in the market.

Identify at least three possible synergies that could occur as a result of the proposed acquisition.

Patents

While Moderna owns the patent to their Covid-19 vaccine, amongst other patents to other inventions, buying the rights would be unsustainable to Pfizer if they were to lease or purchase the patents without acquiring the company. Acquisition of 100% voting Stock of Moderna is a strategic move that would transfer all the patent rights to Pfizer. The synergy is vital in ensuring the company achieves a competitive advantage over rival international companies. Countries have been in the race to find the Covid-19 vaccine. Acquiring Moderna is a competitive edge that will ensure the company produces the most efficient drug that will be more efficient, easier to store, and cheaper to produce. The U.S. government will most likely offer more finances to Pfizer-Moderna Merger to be a leading manufacturer and producer of the vaccine. Thus, the acquisition is a strategic step that will improve the company’s competitive advantage.

Research and Development

Pfizer will have access to Moderna’s research and development efforts, which, when applied by Pfizer, will allow for better development. The acquired research and development will also cut production costs without necessarily compromising quality. Moderna has invested heavily in biotechnology research. Thus, the acquiring company will enjoy the research that may be undergoing and already patented. Moderna’s vaccine can be easily stored in normal fridges and thus helps in supply chain efficacies (Mahase, 2020). One of the main challenges that face Pfizer’s vaccine is the supply chain. Thus the acquisition should be facilitated.

Complementary Products

Pfizer and Moderna have different products that may complement each other. Moderna and Pfizer’s biotechnology products can be bundled in such a manner that they produce higher sales. Pfizer often partners with other biotech companies to facilitate the research and development of their products. Pfizer partnered with BioNTech for research in mRNA a German biotech company. Over the years, Pfizer has acquired King Pharmaceuticals, Innopharma, Redvax, Anacor Pharmaceutical, and Mediven, among other companies. Therefore, the acquisition of Moderna by Pfizer aligns with their strategic goals that will complement the two companies’ products, but it will also facilitate the organization’s success.

Select two out of the three choices provided in the scenario and analyze the key accounting requirements for each of the two choices that you selected.

Acquiring 100% voting stock of a company is considered consolidation. The accounting principles of acquiring a subsidiary will guide the accounting procedures. Overall, the cost of acquisition is obtained by measuring the fair value of the Equity instruments issued, the Assets given, and the liabilities incurred or, rather, the liabilities assumed at the exchange date.

The liabilities and contingent liabilities are assumed, and the assets acquired in the acquisition are measured at the date of acquisition at their fair value and in full (100%). IFRS 3 recommends making any adjustment to the purchase price allocation within a year. Contingent considerations are transferred to the acquirer and are recognized at their fair value as of the date they are acquired.

Accounting for 35% Acquisition

The 35% acquisition would give Pfizer a non-controlling interest in Moderna. However, Pfizer has to follow the following accounting requirement:

Measure non-controlling interest at the very date the acquisition takes place. According to IFRS3, when Pfizer acquires 35% voting stock, Moderna will implement a consolidated accounting method.

Income statement and Balance sheet

Pfizer will calculate the income statement of Moderna. The non-controlling interest is then calculated as (35% X income). The result is treated as an income on Pfizer’s account.

The same applies to the Balance sheet. Assets are multiplied by 35%, the same as equity and liabilities.

Advantages of 100% Acquisition of Voting Stock of Moderna

The choice enjoys the benefits of IAS 27 guidance on control. IAS 27 gives the acquiring company the power to govern all of a firm’s operating and financial policies to gain benefits from its activities (Muthupandian, 2010). Pfizer will have full control of Moderna in the context of a 100% acquisition. The IAS 27 does not define operating and financial policies. However, Pfizer is likely to enjoy full control of marketing, manufacturing, sales, acquisition, and disposing investments and human resources, which Pfizer has full control of. Moreover, Pfizer will enjoy capital expenditures and accounting policies.

In hindsight, 100% voting stock gives Pfizer the advantage of governance and enjoyment of governance consequences, which involves the power to make decisions and accomplish something.

The IAS 27 (2008).14 defines the voting rights Pfizer will enjoy if they opt for 100% voting stock acquisition. Pfizer will use the voting power over any other party, and they will determine the financial and operating policies.

Thirdly, Pfizer will enjoy access to experts from Modern and exploit a pool of knowledge from the scientists in Moderna.

The Type of Value (That Is, Cost of Fair Value) That You Would Use to Report the Subsidiary’s Net Asset in the Subsidiary’s Financial Statements

Cost of Fair Value of Net Asset

The published price at the acquisition date provides the fairest price/value of the asset and should always be used as the fair value unless in circumstances where the company does a thorough valuation. Owning more than 50% of a company’s voting stock creates a subsidiary. Thus, the two companies financial statements will have to consolidate their financial statements in the foreseeable future.

The cost of fair value net assets of the Modern will be calculated as follows:

Net Assets = Total Assets – Total Liabilities.

The fair value of the assets will be compared with the purchase consideration to determine if goodwill may arise on the acquisition.

The net assets will be calculated as follows:

Net assets = (3.28 B – 1.89 B)

= 1.39 B

References

Mahase, E. (2020). Covid-19: Moderna vaccine is nearly 95% effective, trial involving high risk and elderly people shows. BMJ: British Medical Journal (Online), 371.

Muthupandian, K. S. (2010). IAS 27 Consolidated and Separate Financial Statements-A Closer Look.

Pfizer, (2021).Company Fact Sheet. Retrieved: https://www.pfizer.com/about/leadership-and-structure/company-fact-sheet

Yahoo F. (2021, January 22). Moderna, Inc. (MRNA). Retrieved: https://finance.yahoo.com/quote/MRNA/press-releases?p=MRNA

Appendix 1

Financial statement of Moderna as of January 25, 2021

https://www.wsj.com/market-data/quotes/MRNA/financials

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