Why AstraZeneca PLC Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of AstraZeneca (NYSE: AZN  ) , a global branded pharmaceutical giant, tumbled as much as 13% after it rejected rival Pfizer's (NYSE: PFE  ) purported final offer to buy the company.

So what: Under the terms of the latest deal Pfizer was willing to pay $118.8 billion to purchase AstraZeneca (around $92.50 per share), whereas AstraZeneca's management team was looking for a considerably sweetened bid in the neighborhood of $98 or more per share. According to AstraZeneca's management team the deal would greatly undervalue the company current products and pipeline assets, and it doesn't believe that Pfizer's offer represents what's in the best interests of shareholders. In other words, the same speech shareholders have heard three times now. Pfizer now has until 5pm local time next Monday to make another offer under the U.K.'s takeover rules, otherwise it can't make another offer for AstraZeneca for six months.

Now what: With an offer that represented a 45% premium from whence the bidding began, I believe AstraZeneca's board has stubbornly thrown away what I consider to be a more-than-fair offer. The true value for Pfizer lies in purchasing AstraZeneca and moving its headquarters overseas to reduce it tax liability. That and combining its R&D and SG&A department would result in billions of savings – although it would take a couple of years to realize all those savings. AstraZeneca, though, has a lot of ongoing issues it needs to work through, but none more pressing than its ongoing patent issues. The deal would have made sense from a strategic standpoint, but I had trouble justifying the price following the first bid, let alone a third bid from Pfizer's standpoint. I would personally be surprised to see any competing bids come in, or for Pfizer to make a fourth bid for AstraZeneca. It's quite possible that, as I warned previously, shareholders could see nearly all of their buyout talk gains erode over the coming weeks.

The allure of big pharma is their hefty dividend payments. But this isn't the only space you can find high-yield income plays as our top analysts show below
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (2) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 19, 2014, at 5:42 PM, SteinwayB731 wrote:

    ' . . .combining its R&D and SG&A department would result in billions of savings.'

    Thanks for the article, Sean, but respectfully, I disagree.

    Merging two large pharma companies and combining their R&D and SG&A departments may realize some cost savings to appease shareholders who own the stock but don't understand the business, but ultimately it eviscerates the R in R&D, and that is what drives the discovery of new drugs. Large Pharma is in the business of discovering and developing new drugs, and the creativity and innovation in 'R' are what drive that discovery. Large Pharma CEO's behave as though they do not understand this.

    Minus 12% on any stock is taking quite a hit. At some point, AZN becomes a buy (again), with good management, a good discovery operation, and a solid dividend. PFE is the opposite, with an anemic dividend and management that couldn't set solid strategy even if it happened to come up and bite them in the rear end. And of course, they have already eviscerated their own discovery operation. They got rid of Sandwich, Kent in the UK that was largely responsible for all of their current drugs. They have proven that you can't buy and cut your way to prosperity. All it does is remove jobs from the economy, jobs in 'R' that might help you discover new drugs. Congratuations to the UK and Swedish governments for opposing, and hopefully, nixing this deal.

  • Report this Comment On May 20, 2014, at 12:45 AM, smurfffool wrote:

    Yes, congrats to the UK and Swedish govts for throwing away tax dollars and jobs. As a PFE stockholder (and up 35% nice and steady upward slope, thank you very much Mr. Bear), glad they walked away. AZ thinks too much of themselves and will eventually get bought out by someone at a lower price than Pfizer offered.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2963352, ~/Articles/ArticleHandler.aspx, 9/3/2015 7:03:26 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

Today's Market

updated 9 hours ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 4:03 PM
AZN $31.68 Up +0.99 +3.23%
AstraZeneca plc (A… CAPS Rating: ****
PFE $31.97 Up +0.61 +1.95%
Pfizer CAPS Rating: ****