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 UK region has the most in savings? Average savings by areaThe amount people have in their savings differs from region to region in the UK. How does your nest egg compare to those living nearby?
-
Doug and Mary Perkins: Specsavers’ clear-sighted foundersHelped by the deregulation of the sector in the 1980s and brilliant advertising, Mary Perkins and her husband Doug have taken Specsavers to the top of the optometry market
-
Cash in on the biotech boom with three promising European picksOpinion Ailsa Craig and Marek Poszepczynski, portfolio managers at the International Biotechnology Trust, tell MoneyWeek where they’d put their money
-
Investment opportunities in the world of Coca-ColaThere is far more to Coca-Cola than just one giant firm. The companies that bottle and distribute the ubiquitous soft drink are promising investments in their own right.
-
Streaming services are the new magic money tree for investors – but for how long?Opinion Streaming services are in full bloom and laden with profits, but beware – winter is coming, warns Matthew Lynn
-
'Pension funds shouldn't be pushed into private equity sector'Opinion The private-equity party is over, so don't push pension funds into the sector, says Merryn Somerset Webb.
-
Greg Abel: Warren Buffett’s heir takes the throneGreg Abel is considered a safe pair of hands as he takes centre stage at Berkshire Hathaway. But he arrives after one of the hardest acts to follow in investment history, Warren Buffett. Can he thrive?
-
Who will be the next Warren Buffett?Opinion There won’t be another Warren Buffett. Times have changed, and the opportunities are no longer there, says Matthew Lynn.
-
Will Comstock crash – or soar?Opinion The upside for Comstock, a solar panel-recycling and biomass-refining group, dwarfs the downside, says Dominic Frisby.
-
'As AGMs go digital, firms must offer a new form of scrutiny for shareholders'Opinion Technology has rendered big AGM meet-ups obsolete, but the board still needs to be held to account, says Matthew Lynn
