It was just on hiatus.
With a mandatory three-month cooling period now officially complete following the initial proposition — and with AZN shares down from the frothy levels hit after Pfizer’s initial offers were made — Pfizer is free to make one final and completely private so-called “knockout” offer to AstraZeneca.
If the U.K.-based pharmaceutical company rejects that offer as it has the previous two public bids, then Pfizer can’t make any more unsolicited overtures again until November.
Current owners of Pfizer stock are on the edge of their seats, waiting to see if the company makes one last-ditch attempt to scoop up AstraZeneca.
But if it does, will the deal be worth the hefty price Pfizer is certainly going to have to pay for AZN?
Just as a refresher, Pfizer initially began its bid for AstraZeneca in April, largely seeking a compatible foreign pharmaceutical name to take advantage of favorable overseas tax law (a so-called tax inversion deal). The foreign tax domicile gained through an AZN acquisition would allow a tax-free repatriation of $30 billion worth of cash held overseas, not to mention allow Pfizer to reincorporate in the U.K. where corporate taxes aren’t as heavy.
Of course, it would be incorrect to suggest Pfizer didn’t like what AstraZeneca had in its pipeline. Although the expiration of the Lipitor patent in 2012 was the most alarming of patent cliff problems owners of Pfizer stock were worried about, the company still is in the midst of losing patent protection on other drugs. It needs to reload. While it could be years before the better pieces of the AstraZeneca pipeline bear fruit, it might well be worth the wait — and the price — Pfizer was willing to pay.
And that price in May was £55 per share of AZN (US$116 billion total). Most of that would be payable in Pfizer stock; shareholders would receive 1.74 shares of PFE stock and £24.76 for every share of AZN they owned. While that was stronger than the first offer in April, it still was shy of the £58.85 that AstraZeneca CEO Pascal Soriot contends AZN stock is worth.
While Soriot might have pegged a price of £58.85 per share, that’s not to say he’ll entertain such an offer. He maintains that, even though it will take some time to reach the end zone, AZN shareholders still would be better served by letting the company continue to develop a handful of potential blockbusters in the works.
At the heart of Soriot’s argument are in-development drugs MEDI4736 and AZD9291. The former is a cancer immunology therapy, and the latter is a treatment for lung cancer. AstraZeneca has several more late-stage trials underway too… 15 in all. The company expects its current portfolio and pipeline to drive $45 billion in annual sales by 2023. For comparison, AstraZeneca generated $25.7 billion in sales in 2013.
Whatever the pipeline and portfolio are truly holding, AZN shareholders still have mixed opinions on management’s rejection of the initial bid from Pfizer.
While no news of a knockout offer has surfaced yet, bear in mind that it wouldn’t be publicized until/unless AstraZeneca management felt it got an offer worth presenting to AZN shareholders.
But an offer probably is coming.
A company willing to pay £55 per share likely will be willing to up the offer a mere 7% — especially when the bulk of the offer is stock, not cash. The fact that Pfizer needs to refill the pipeline is quite clear, and the tax benefits certainly don’t hurt either.
However, AstraZeneca isn’t apt to take the offer — even if it’s cranked up to £58.85.
As is the case with any other deal, if Pfizer is willing to pay a certain amount for AstraZeneca, AZN is worth at least that much on its own, or perhaps even more if the majority of shareholders are willing to wait for the current pipeline to begin driving revenue.
Truth be told, were the offer being made mostly with cash rather than mostly with PFE stock, it might be easier for shareholders and AstraZeneca management to consider the offer. But to ask owners of a compelling company to take on the risk of owning a company that’s dropping hints of major reorganization … that isn’t a prospect investors will jump at.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.