What’s new
■ Failed Pfizer deal
■ Renewed focus on pipeline
■ Still some takeover froth in the share price
Ian Read, the chairman of US drugs giant Pfizer (US:PFE), has admitted defeat. A matter of hours ahead of its 'put up or shut up' deadline on 26 May, Pfizer confirmed it had abandoned its effort to buy UK rival AstraZeneca (AZN), but not before it had emphasised that its final £70bn offer was - in its opinion - 'compelling' and representative of the 'full value' of the Anglo-Swedish firm, albeit based only on the limited information publicly available. The failure to secure a deal is rare for Pfizer, which has agreed a number of high-profile acquisitions over the past decade.
The merger frenzy pushed Astra’s share price well above the level of our original buy tip (Buy, 3,754p, 16 April 2014). But its fall back to about £43 begs the question: can Astra's product pipeline deliver the value chief executive Pascal Soriot promised in his defence of the group's independence?
Mr Soriot will have to deliver clinical achievements on time and within budget for shareholders to believe Astra's independence is worth their support. Meanwhile, speculation is mounting that Pfizer will attempt another offer after the end of the mandatory six-month cooling-off period - or even after three months if AstraZeneca decides to open negotiations.
Deutsche Bank says…
Hold. Pfizer having exited stage left, AstraZeneca’s long-range plan looks highly optimistic to us. Over the coming months the shares will probably trade on a mixture of ‘fair value’ based on fundamentals (close to £40 a share) and the residual likelihood of a Pfizer return. Pfizer’s parting comments hint at the possibility of its coming back with a higher offer, as long as it can be given more information. Pfizer must be relying on Astra’s shareholders to persuade the board to engage in merger discussions. Expect EPS of 434¢ (259p) this year, down from 504¢.
Brewin Dolphin says…
Hold. The outcome of Pfizer's approach is not surprising, given the group's limited options and AstraZeneca's firm rebuffing of previous bids. But we do not think the story is over yet. Both Blackrock and Axa, AstraZeneca's largest shareholders, have indicated they want management to engage in discussions. On a standalone basis, we have previously noted AstraZeneca is worth around £41 per share. This reflects our assessment of the future product pipeline as well as the legacy pharmaceuticals business. But our belief remains that Pfizer will return.
