AstraZeneca shares soar after Pfizer confirms bid talks

Astrazeneca

Related Stories

Shares in pharmaceutical company AstraZeneca rose by more than 14% on Monday, after US giant Pfizer confirmed its interest in a takeover bid.

The firm said it had contacted AstraZeneca over a multi-billion pound bid for the UK-based drug maker.

If successful, the deal would be the biggest ever takeover of a UK firm by a foreign company.

Pfizer said it approached AstraZeneca on Saturday, after an initial offer in January, worth £58.8bn, was rebuffed.

AstraZeneca said the original offer "significantly undervalued" the firm, which employs more than 51,000 staff.

However, AstraZeneca said it was "confident" its strategy would create "significant value" for shareholders on its own.

"The Board remains confident in the ongoing execution of AstraZeneca's strategy as an independent company," it added.

Pfizer's statement this morning is a love letter to AstraZeneca's shareholders.

It talks of "a highly compelling opportunity to realise a significant premium" and offers a "substantial cash payment".

Pfizer also pledges that AstraZeneca shareholders would be able to take up significant rights in any combined company.

Judged by other pharmaceutical deals, any bid of this size would come at a premium of around 30%, presumably on AstraZeneca's undisturbed 17 April share price of £37.81.

With a present market value above £50bn, AstraZeneca would cost Pfizer around £65bn.

Pfizer has the cash, with a multi-billion dollar war chest held off-shore to shield it from American tax laws.

If AstraZeneca does not engage, and it hasn't so far, this bid could turn hostile.

It will be quite a battle.

Pfizer said in a statement that AstraZeneca's refusal to engage meant it was currently "considering its options".

Global player

AstraZeneca manufactures drugs in 16 countries focusing on treatments for diabetes, cancer and asthma as well as antibiotics.

It reported £25.7bn in sales last year, with £3.3bn in pre-tax profit.

In the UK it has eight sites and about 6,700 employees.

Recently it posted a drop in first quarter profits - and laid off thousands of staff in an effort to reduce its costs to compensate for a fall in sales - due to patent losses on blockbuster medicines.

In April, it posted a drop in first quarter profits after its earnings were by hit by patents expiring on some of its older medicines.

'Compelling opportunity'

Pfizer said its initial offer in January was a combination of cash and shares worth £46.61 per AstraZeneca share, worth £58.8bn in total.

At the time, it represented a 30% premium to AstraZeneca's share price, although AstraZeneca's share price has since increased and on Monday morning it jumped nearly 15% to £46.88p.

Pfizer said the deal was "a highly compelling opportunity" for AstraZeneca's shareholders.

It said if the takeover went through, the combined firm would have management in both the US and the UK, but would list its shares on the New York Stock Exchange.

Chart comparing R&D expenditure for UK companies

"We have great respect for AstraZeneca and its proud heritage," said Pfizer chairman and chief executive Ian Read.

Pfizer said it would only make a firm offer if AstraZeneca directors voted unanimously in favour of the deal.

AstraZeneca

Last Updated at 16 Sep 2014, 03:10 ET *Chart shows local time AstraZeneca intraday chart
price change %
4527.00 p -
-18.00
-
-0.40

"The strategic, business and financial rationale for a transaction is compelling," it added.

Hostile move?

Buying AstraZeneca would give Pfizer, whose drugs include Viagra, access to a number of cancer and diabetes drugs.

However, Justin Urquhart Stewart, head of corporate development at Seven Investment Management, told the BBC the price Pfizer is offering was still too low to secure a deal.

"It's too close to what it is priced at in the market," he said.

"They've tried to talk to the management and gain agreement but that's not happened so they are considering now going directly to the shareholders".

Citi analyst Andrew Baum said he believed there was now a 90% chance that Pfizer would acquire AstraZeneca for at least around £49 a share.

Start Quote

AstraZeneca's £7bn of drugs sold every year accounts for a whopping 2.3% of British goods exports.”

End Quote

Linda Yueh, the BBC's chief business correspondent, notes that AstraZeneca is a key UK firm in the area of research and development (R&D) and also in exports.

"AstraZeneca's £7bn of drugs sold every year accounts for a whopping 2.3% of British goods exports," she added.

Pfizer has made other major acquisitions, its most recent being the $68bn (£40.4bn) purchase of Wyeth in 2009.

However, this would mark its biggest foreign acquisition.

It would also be the largest foreign takeover of a British firm, beating some of the more recent deals which include:

  • O2 bought by Spain's Telefonica for £18bn in 2005
  • Cadbury bought by US-based Kraft for £11.5bn in 2010
  • Alliance Boots bought by US investment firm KKR for £11.1bn in 2007
  • BAA bought by Spain's Ferrovial for £10.3bn in 2006
  • Powergen bought by Germany's E.on for £9.6bn in 2002

However, the BBC's business editor, Kamal Ahmed, warned Pfizer's takeover approach could turn into a lengthy battle.

"If AstraZeneca does not engage, and it hasn't so far, this bid could turn hostile," he said.

Reacting to news of the bid, Business Secretary Vince Cable said: "My priority is to ensure that the objectives of this government's life sciences industrial strategy are fulfilled. This means ensuring there are high-skilled jobs and long term investment in research and development in the UK.

"On the potential merger, the CEO of Pfizer has made contact and informed me of his intentions and I have emphasised the importance of these points."

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    PHONES 4U COLLAPSE 08:23: BBC Radio 4

    As well as condemning the network firms, Mr Caudwell also dishes out criticism for the BC Partners, the private equity firm that owned Phones 4U. He says it took £200m out of the business. Despite that it was still a viable business, with £100m on its balance sheet.

     
  2.  
    HEADLINES
    • Phones 4U 'assassinated' by networks says Caudwell
    • Calpers withdraws $4bn from hedge funds
    • ASOS shares slump after trading update
     
  3.  
    PHONES 4U COLLAPSE 08:09: BBC Radio 4

    The "ruthless actions" of mobile phone networks were behind the demise of Phones 4U says founder John Caudwell , who sold the business in 2006. It was an "unprecedented assassination" of the company by the networks which had partnered the firm for 20 years he said on the Today programme. The idea the Phones 4U managers "dug their heels in" during negotiations is "preposterous", he says adding "I simply don't believe Vodafone".

     
  4.  
    THOMAS COOK 07:56:
    The logo of travel agency Thomas Coo

    UK holiday operator Thomas Cook says it expects full-year earnings to the end of September will be in the range of £315m to £335m putting it broadly in line with analyst expectations. It added weaker prices, which it first warned about in May, continued but it had offset that impact by speeding up its cost-cutting programme.

     
  5.  
    CALPERS DUMPS HEDGE FUNDS 07:41:

    US pension giant Calpers is withdrawing all of its investments in hedge funds, blaming their expense and complexity. That's a cool $4bn (£2.4bn) leaving 30 hedge funds. Calpers, which stands for the California Public Employee's Retirement System, is the biggest public pension fund in the US.

     
  6.  
    Via Twitter Nick Bubb, retail analyst

    tweets: "Ouch....Q4 sales at ASOS weren't quite as bad as feared (+15%), but ASOS warn that there will be no profit recovery in y/e Aug 2015"

     
  7.  
    MAURICE LEVY 07:30:
    Mauricy Levy

    Maurice Levy, one of the most influential figures in advertising and in France, is to stand down as chairman of advertising giant Publicis in 2016. He is credited with turning Publicis into one of the world's biggest advertising agencies.

     
  8.  
    ASOS TRADING 07:18:
    ASOS

    Asos says that a fire at its Barnsley distribution centre in June resulted in lost sales of between £25m and £30m. But the online fashion retailer expects annual profit to still be in line with market expectations. Total first quarter sales rose 15%.

     
  9.  
    SCOTTISH INDEPENDENCE 07:05: BBC Radio 4
    pound coins

    What will happen to the currency on Friday it Scotland votes in favour of independence? George Godber of the fund manager Miton tells the Today programme that he can see "a very significant fall" in the value of the pound, maybe as much as 10% over about a week. That's because the UK's status as the fastest growing Western economy and a safe haven will be put in jeopardy, he says.

     
  10.  
    RUSSIA GAS 06:49: BBC Radio 4

    Europe could cope if Russia were to interrupt gas supplies in retaliation to European sanctions, says Malcolm Bracken of stockbrokers Redmayne Bentley. Norway can increase oil and gas production and gas reserves are in a pretty healthy shape, he says. Vladimir Putin needs money from the West more than he's letting on so we shouldn't be too worried about the effect of sanctions, says Mr Bracken on Today.

     
  11.  
    BUSINESS RATES 06:43:

    More than 100 of the UK's biggest companies, including Tesco and Marks & Spencer, have called for an overhaul of business rates. In an open letter to the Daily Telegraph they say business rates "are no longer fit for purpose for the 21st century". The tax brings in £25bn for the Treasury annually.

     
  12.  
    OIL PRICES 06:35: BBC Radio 4

    Brent Crude fell below $97 a barrel on Monday for the first time in two and a half years. Malcolm Bracken of stockbrokers Redmayne Bentley explained the fall on the Today programme. "There's been a slowdown in China, cars are becoming more efficient, the war premium is falling, sanctions haven't really had an effect on oil production in Russia and money is tightening," he says.

     
  13.  
    ALIBABA SHARE SALE 06:20: Radio 5 live
    Alibaba head office, Hangzhou

    Alibaba has raised the price range of shares in its US stock market debut and could now raise $25bn (£15.4bn). The funds will allow the Chinese internet company "to make its mark" in the US market place says BBC Business presenter Rico Hizon on Wake Up to Money. Company executives are on an international road show to market the shares. Today there are in Singapore, tomorrow London.

     
  14.  
    SCOTTISH INDEPENDENCE 06:12: Radio 5 live
    Scottish flag

    The leaders of the three main parties at Westminster have signed a pledge to devolve more powers to Scotland, if Scots reject independence. On Wake Up to Money Colletta Smith, the Economics Correspondent for BBC Scotland says it amounts to an "agreement to make some kind of agreement". Details will have to be worked out after the vote, she says.

     
  15.  
    PHONES 4U COLLAPSE 06:02: Radio 5 live
    Phones 4U

    "I'm not surprised it fell over," says fund manager, George Godber in reference to the failure of Phones 4U over the weekend. On Wake Up to Money Mr Godber says the company did "not have any room for financial manouevre" because its private equity owners had recently loaded it with £250m in debt. Phones 4U founder John Caudwell will be on Radio 5 at around 08:45.

     
  16.  
    06:00: Matthew West Business Reporter

    Morning folks as always you can get in touch with us here at bizlivepage@bbc.co.uk and on twitter @bbcbusiness.

     
  17.  
    05:59: Ben Morris Business Reporter

    Good morning. It's shaping up to be a busy morning with inflation figures due at 09:30 and we'll see what John Caudwell has to say about the demise of the company he founded, Phones 4U. Stay with us.

     

Features

From BBC Capital

Programmes

  • Click reporter Jen Copestake looks at a smart mirrorClick Watch

    From the mirror offering beauty advice to next gen robot vacuums - the connected home of the future

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.