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”.
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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.
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