“We don’t comment on market speculation or rumors,” said Andrew Topen, a Pfizer spokesman. A sound policy but, fortunately, we have the Sunday Times to tell us that Pfizer in recent weeks made an informal approach to buy AstraZeneca for around 60 billion pounds. At a 27% premium to AstraZeneca’s current market value, that would provide a nice fillip for the FI portfolio. But who does it make most sense for?
The first rationale for Pfizer is probably tax. Reportedly, Pfizer has 42 billion pounds of cash on hand at its overseas subsidiaries. Repatriating this to the US would cost it 35% in tax and, as it is currently earning next to nothing on deposit, it would obviously be better to use it than to lose it.
Secondly, AstraZeneca has a promising pipeline in one of the hottest areas for pharma at the moment–immunology. This is a form of treatment which harnesses the powers of the body’s immune system to stop cancer evading its natural defences and tumour destruction capabilities. You can read about this at the Bristol-Myers Squibb website. B-MS and Roche are the leaders in this field, but Astra, thanks to their new CEO, Frenchman Pascal Soriot, has built up a decent pipeline of potential treatments. No doubt Pfizer, battling its patent cliff, would like to strengthen in this area.
The third rationale is, most likely, simply cost cutting. The FT’s Lex column today points out that both companies have large R&D operations at Cambridge; one of these would be immediately marked critical.
What would be a desirable take-out price from an Astra shareholder’s perspective? For tax reasons, it would probably be better for me if Astra remains Astra so that I can collect the dividend income tax-free in my ISA. If Astra turns into Pfizer then a portion of the Pfizer dividend will be siphoned off by Uncle Sam. On the other hand, jam today is always tempting too and, if Pfizer return with an offer around £50, then it would compensate for the hassle and I could cash-out and take the proceeds elsewhere. The best scenario would be if Novartis notice what is going on and decide to gatecrash the party. I would like more Novartis shares anyway, and this would be a nice way to acquire them! Sadly, that is probably getting far-fetched.
The losers, as so often in a takeover, would probably be the employees of both companies. Hopefully they will be treated fairly if and when the management does begin to look for synergies. It will be interesting to see how the board of Astra respond; they report on Thursday and will undoubtedly face questions on the subject. If they decide to resist the bid then, coupled with Pfizer’s interest, it will provide an encouraging long-term prognosis for AZN’s state of health.
Disclosure: Long AZN, ROG
Disclaimer: This post is not a recommendation to either buy or sell. Please consult your investment advisor.