Drug giant AstraZeneca’s shares “fell sharply” this week after it agreed to “the biggest deal in its history”, says Julia Kollewe in The Guardian. Investors are worried that the $39bn it is paying for US rare-diseases specialist Alexion is excessive, especially since it represents a 45% premium to Alexion’s pre-deal price. The deal, which involves both cash and shares, will force AstraZeneca to secure a $17.5bn bridging loan. AstraZeneca’s stock has had a tumultuous year. It surged to £96.39 in July when the group published promising interim results related to its coronavirus vaccine. However, it has since been hit by recent vaccine trial results suggesting its treatment could be less effective than its rivals’ drugs and doubts over whether the vaccine will be licensed in the US.
US biotech Alexion is an “unexpected target” for AstraZeneca, but could also be a “canny one”, says Lex in the Financial Times. While the British company is paying a 45% premium for a business that “does not obviously fit with its own portfolio”, the premium “is not high by biotech standards”. The additional debt “is likely to be paid off within three years, thanks to Alexion’s strong cash flow”. The deal brings around $500m of synergies and the technology developed by Alexion complements AstraZeneca’s skills, as it can be applied to more than rare diseases. Meanwhile, Alexion’s expertise in the “fast-growing” rare disease market could “increase the uptake of niche discoveries”.
A bidding war?
The fact that Alexion was trading at just ten times earnings means that even with the premium the deal looks “like a winner”, says Charley Grant in The Wall Street Journal. Still, AstraZeneca’s shareholders “shouldn’t count on that extra dividend boost just yet”, as there is “no shortage of large companies with long-term growth challenges but fat wallets”. As a result, there is a chance that AstraZeneca could end up being sucked into a bidding war, making the takeover much less attractive. CEO Pascal Soriot’s “megadeal” marks a “stunning turnaround” for a business that only six years ago “faced extinction” from a hostile takeover by Pfizer, says Jim Armitage in the Evening Standard. The deal would have “deprived the world of one of the two Covid-19 vaccines the predator and prey have now independently developed” and would also have “stolen from shareholders the 87% rise in AstraZeneca’s share price Soriot has overseen since”. So many UK firms have been “bought on the cheap by foreign predators”; we should welcome this “turning of the tables”.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
There could be a “wave of deal-making” in the sector next year, says Julia Bradshaw in The Daily Telegraph. Big pharma will be looking “to beef up its pipelines while borrowing remains cheap”; investors will be seeking the sort of “long-term, stable returns” its combination of yield and growth offers, which looks attractive compared with declining industries such as oil and tobacco.
-
Which investment trusts could benefit from lower interest rates?As vehicles for long-term investments, many investment trusts were hit when interest rates rose in 2022. With interest rates expected to fall by the end of the year, could now be the time to invest in one of these unloved sectors?
-
How to protect your personal and financial data from cyber attacksM&S and the Co-op are the latest retailers to suffer from cyber hacks but consumers also need to be vigilant
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
-
Two ways to tap into monopoly profits from airportsMost investors can’t get their hands on airports. Here are two ways you can
-
Fat profits: should you invest in weight-loss drugs?The latest weight-loss treatments could transform public health and the world economy. Should you invest?
-
How investors could profit from Ramsden Holdings' four-part growth strategyRamsdens Holdings offers a diversified set of financial and retail services and a juicy yield, says Dr Michael Tubbs
-
How to invest in the booming insurance marketThe insurance sector is experiencing rapid growth after years of stagnation. Smart investors should buy in now, says Rupert Hargreaves
-
Precision-engineered profits: How to invest in genomicsDevelopments in genomics are enabling the rise of personalised medicine, with therapies tailored specifically for individuals. Smart investors should buy in now, says Matthew Partridge
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocksOpinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
BP's 'long, painful decline' – and why next year could be even tougherOpinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
