AstraZeneca reportedly rejects £60bn approach from Pfizer

Pfizer may come back to bid for British drug company AstraZeneca after its reported £60 billion takeover approach was rejected, since a deal could make sense for the US pharmaceuticals giant as it seeks to build up its cancer franchise.

In addition to adding promising - though still risky - experimental medicines known as immunotherapies that boost the body’s immune system to fight tumors, acquiring AstraZeneca could also generate significant cost savings, according to industry analysts.

As a result, a deal at around a 25 per cent premium to the current share price funded by cash, cheap debt and some stock could boost Pfizer earnings immediately, they believe.

Both companies have declined to comment on a report in the Sunday Times, which cited senior investment bankers and industry sources saying that Pfizer approached the British pharmaceuticals group about a deal. The newspaper said no talks were currently under way after AstraZeneca resisted the approach.

Citi analyst Andrew Baum said he believed the report was “very likely genuine” and Pfizer could return to the fray, given the attractiveness of AstraZeneca’s pipeline of cancer drugs, its expertise in autoimmune diseases and the scope for taking out costs. “We anticipate Pfizer to push aggressively ahead with a second approach,”Mr Baum wrote in a research note yesterday, adding that AstraZeneca might seek to structure any deal as a merger of equals as a defense strategy.

Betaville, a British financial blog, said AstraZeneca had hired Goldman Sachs and Morgan Stanley to act as “defense” advisors in the event Pfizer makes a new effort to acquire the London-based drugmaker. The two investment banks already act as AstraZeneca’s corporate brokers.

The blog also said that Pfizer may be working with JP Morgan to work on any potential bid. AstraZeneca and Pfizer declined to comment on the investment bankers, and officials at Goldman Sachs and Morgan Stanley could not immediately be reached. Pfizer shares closed up 2 per cent, while AstraZeneca shares rose 8.8 percent, both on the New York Stock Exchange.

Pfizer has a long track record of making major acquisitions, with the $68 billion purchase of Wyeth in 2009 its last major deal, after earlier acquisitions of Pharmacia and Warner Lambert.

The drugmaker has more recently been divesting certain operations and mega-mergers have fallen out of fashion in the pharmaceuticals industry following scepticism about how well some of them have worked.

But chief executive Ian Read has said he would still consider a large deal that made sense. Read also has an incentive to buy assets overseas rather than in the United States since Pfizer has tens of billions of dollars accumulated through foreign subsidiaries, which if repatriated to the US would be heavily taxed.

Reuters