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.

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  • 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.

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