Advertisement

Company in the news: AstraZeneca

Drugs giant AstraZeneca is at the centre of a takeover tussle with US rival Pfizer. Phil Oakley looks at how the shares have been affected.

The stock market can be a funny place. Less than a year ago shares in AstraZeneca (LSE: AZN)were changing hands for just over £30 per share.

The company was seen as one of the weakest players in the global pharmaceutical industry, facing years of declining sales and profits as some of its blockbuster drugs came off patent and became exposed to competition from cheap generic ones.Yet value is often in the eye of the beholder.

Advertisement - Article continues below

US drug giant Pfizer has had two bids (the latest being tabled at £50 per share) for AstraZeneca rejected, because the management said that it undervalued the firm.

AstraZeneca has been talking up the value of its drugs pipeline in development. It reckons that new drugs to treat cancer, diabetes and Alzheimer's, among others, could see its sales grow by 75% by 2023.

Given that these drugs have not yet seen the light of day in terms of regulatory approval, let alone sales and profits, this sounds like a valiant attempt to get Pfizer to pay up. But will it?

Maybe. Pfizer has a reputation for growing by buying other companies, rather than by making its own drugs.On top of that it strips out costs and boosts profits. It would seem that the time for Pfizer to do this again has arrived, hence its interest in AstraZeneca.

Pfizer's own sales are falling, because its big earning drugs, such as Lipitor and Viagra, are attracting fierce competition. It seems that Pfizer can chop a lot of costs out ofAstraZeneca but that there is also abigger prize of moving its headquartersto the UK and paying lower taxes than itdoes in America.

690_AZ

The UK government is under pressure tostop Pfizer sacking lots of highly trainedscientists and damaging the country'sscience base. The American governmentwill be keen to stop a big taxpayer likePfizer moving to Britain.

Pfizer has until 26 May to get its bidaccepted. If it does not, it will have toincrease it or pursue a hostile takeover. Should the deal fail, thenyou have to ask whether AstraZeneca'sshares are worth their current £46. That would put it on 18.5 times forecastearnings, compared with 15.3 timesfor the more highly regarded GlaxoSmithKline.

A year ago AstraZenecashares were probably too cheap, butbuying them now looks more risky.Existing shareholders should sit tight,but don't buy if you haven't already.

Verdict: hold

Advertisement
Advertisement

Recommended

Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Share tips: eight stocks that should deliver robust returns
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 Dec 2019
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Dec 2019

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
UK house prices hit a new record high – can it last?
House prices

UK house prices hit a new record high – can it last?

Despite the pandemic, UK house prices have hit a new high. John Stepek looks at what’s driving the surge in prices, and what it means for house prices…
7 Aug 2020