Pfizer's efforts to merge with British rival AstraZeneca has attracted significant political opposition.
HONG KONG (CNNMoney)
Pfizer's new offer of £55.00 ($95.52) per share values AstraZeneca at nearly $120 billion, and is a 45% premium over the company's share price in mid-April. AstraZeneca's board has rejected three previous proposals from Pfizer, saying they undervalued the company.
AstraZeneca (AZN) alone accounts for about 2% of British exports, and the deal would represent the biggest foreign takeover of a British company.
The potential takeover has attracted significant political attention, including calls in Britain for new powers that would allow the government to prevent takeovers by foreign firms in the interest of national security.
Pfizer (PFE, Fortune 500) said the offer made late Sunday would be its final overture. The company said it would not make a hostile bid for AstraZeneca, and will only proceed with the blessing of AstraZeneca's board.
It now appears a merger is unlikely, and Pfizer might be forced to walk away. The company said a third takeover offer made Friday -- at £53.50 ($90) per share -- had been rejected by AstraZeneca.
"We have tried repeatedly to engage in a constructive process with AstraZeneca to explore a combination of our two companies," said Pfizer CEO Ian Read. "Following a conversation with AstraZeneca earlier today, we do not believe that the AstraZeneca board is currently prepared to recommend a deal at a reasonable price."
Related: Health care M&A hits record high
In addition to an expanded drug portfolio -- particularly in cancer treatments -- a deal would provide a use for some of the billions in profits Pfizer holds overseas.
Pfizer has amassed an offshore cash pile totaling more than $60 billion from profits generated outside the U.S. Buying AstraZeneca and basing the new combined group in the U.K. would allow it to make use of those funds -- for M&A, buybacks, dividends or other purposes -- without paying U.S. tax on them.
Related: Pfizer banking on big tax savings in U.K.
In addition, Pfizer is also attracted by recent changes in U.K. law that critics say are turning the country into a tax haven.
While its headquarters would remain in New York, a Pfizer-AstraZeneca combination would be domiciled for tax purposes in the U.K.
The U.K. has been steadily cutting its rate of corporate tax. It now stands at 21% and is due to fall to 20% starting in April 2015. That compares with 26% back in 2011.
The government also offers financial incentives to encourage investment in scientific research and development. Big companies such as AstraZeneca qualify for tax relief worth 130% on their research budgets. That means for each £100 it spends, it can reduce the amount of profit liable to corporate tax by £130.
Companies involved in innovative R&D can also take advantage of a new measure called "the patent box." Introduced in April 2013, it will reduce the corporate tax rate on earnings attributable to U.K. or European patents to 10% by 2017.
Related: Firms warned not to leave U.S. for lower taxes
Pressure is had been mounting on the British government to intervene in the deal. Pharmaceutical, medical biotechnology and medical technology companies employ about 175,000 people, and spend more than £5 billion a year on R&D.
Concerns about pledges made in the heat of takeover battles have been fueled by complaints that Pfizer failed to honor pledges to Sweden's Pharmacia in 2002, and Kraft's U-turn on the fate of a chocolate factory following its purchase of Cadbury in 2010.
-- Mark Thompson contributed reporting. 
First Published: May 18, 2014: 10:30 PM ET
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