Pfizer’s courtship of AstraZeneca looks like a hate-hate relationship. In January, the British pharmaceutical firm AstraZeneca viewed its larger rival’s takeover proposal of 46.61 pounds a share as too low on cash, too risky, and too cheap to even talk about. Pfizer’s latest proposal, an effort to get AstraZeneca to begin friendly talks, hasn’t moved the needle much.
Pfizer is now offering 50 pounds a share, 32 percent of which is in cash. Pfizer needs to find the right mix of cash and shares that allows it to preserve the tax benefits of relocating to Britain - which would require a minimum of 20 percent British ownership of the combined group - while not diluting itself too heavily with the share component of the bid. The latest proposal would leave the British ownership at 27 percent of the combined company, so there’s still room to up the cash.
The new price represents a mere 7 percent increase on the original offer - not a significant bump. True, it values AstraZeneca at a whopping 20 times forward earnings estimates, double the multiple it traded at a year ago.
Yet it seems cheap to those shareholders who see AstraZeneca’s turnaround as well advanced, and its potential cancer immunotherapy pipeline as a blockbuster in waiting. Citigroup estimates that AstraZeneca could be worth £49 a share on a stand-alone basis.
Pfizer’s share of the synergies and tax benefits could be worth nearly £2 a share, according to analysts at Berenberg. Some investors, who piled into the stock for its high income, will see the £50-a-share bid as an unexpected windfall. But others will be antagonized. AstraZeneca’s board seems to be listening to them, and has rejected the offer.
Pfizer’s chief executive, Ian Read, seems to be having a little more luck in the second leg of his British charm offensive, an effort to get the government on side. Mr. Read said he would complete a research center in Cambridge, retain a manufacturing plant in Macclesfield and keep 20 percent of the group’s research jobs in the country.
Britain’s science minister, David Willetts, gushed that Pfizer “has come a long way.†Maybe someone should tell him that a five-year commitment, with few details, doesn’t amount to much.
AstraZeneca’s stock price of £48 a share is still implying perhaps an 80 percent chance of a bid at £52. It looks as if Mr. Read will have to further loosen the purse strings.
