A week after being rejected by AstraZeneca (AZN) for the fourth time, Pfizer (PFE) abandoned its plans to takeover the UK-based company. Pfizer’s decision brings down the curtains, at least for now, on its attempts to create one of the largest pharmaceutical companies in the world. Shares of AstraZeneca were adversely impacted by the news in pre-market trading.
We remind investors that Pfizer made its initial offer to buy AstraZeneca last month. As per the initial offer, Pfizer was looking to acquire AstraZeneca for more than £60 billion (about $101 billion). The offer was rejected by the British company as were the subsequent improved offers.
On May 18, 2014 Pfizer made its final takeover proposal. The proposal valued AstraZeneca at £55.00 (approximately $92.53) per AstraZeneca share (comprising 1.747 shares in the combined entity and 2,476 pence in cash).
AstraZeneca, while rejecting the final offer, stated that the proposal undervalued the company and would be significantly dilutive to its shareholders. Apart from that, AstraZeneca continued to harbor concerns regarding the transaction structure (low proportion of cash, high proportion of Pfizer shares) and risks related to the proposed inversion structure (Pfizer’s intention to redomicile to the UK for tax purposes).
Will Pfizer Chase AstraZeneca Again?
According to a report appearing the Reuters, Pfizer can renew its bid to buy AstraZeneca six months later. In the first quarter of 2014, Pfizer reported lower-than-expected revenues with many of its key products facing declining sales due to genericization.
Pfizer will be hit by a series of patent expiries until 2015. The loss of patent exclusivity in the coming years will make it challenging for the company to drive top-line growth. Pfizer was looking to boost its pipeline, realize operational synergies, have a more efficient tax structure and speed up earnings growth by combining with AstraZeneca. We believe Pfizer will return with a sweetened offer six months down the line to fulfill its above objectives.
Both Pfizer and AstraZeneca are Zacks Rank #3 (Hold) stocks. Better-ranked stocks in the healthcare space are Allergan (AGN) and Gilead Sciences (GILD). Both are Zacks Rank #1 (Strong Buy) stocks.
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