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Pfizer Said to Have Held Now-Dormant Talks to Buy AstraZeneca

By Drew Armstrong and Aaron Kirchfeld
April 21, 2014 9:41 AM EDT 10 Comments
Pfizer Inc.’s stock has gained 34 percent in the last two years.
Photographer: Chris Ratcliffe/Bloomberg
Pfizer Inc.’s stock has gained 34 percent in the last two years.

Pfizer Inc. (PFE), the world’s biggest drugmaker, held informal, now-discontinued talks with AstraZeneca Plc about possibly buying the London-based maker of asthma and heart drugs, said two people familiar with the matter.

The companies aren’t currently negotiating, said the people, who asked not to be identified. One said the talks happened several months ago and there are no plans to resume. The discussions were first reported yesterday by London’s Sunday Times, whose unnamed bank and industry sources said New York-based Pfizer made a tentative approach about a takeover valuing AstraZeneca at more than 60 billion pounds ($101 billion).

If revived, such an acquisition would be among the largest ever in the industry. Pfizer has reorganized its business over the past three years, shuttering some research projects and emphasizing others. A deal with AstraZeneca (AZN) would add early-stage drugs in a field of cancer treatments that use the body’s own immune cells to recognize and attack cancer.

“We don’t comment on market speculation or rumors,” said Andrew Topen, a Pfizer spokesman, in an e-mail. Esra Erkal-Paler, am AstraZeneca spokeswoman, declined to comment.

American depositary receipts for AstraZeneca gained 5.9 percent to $67.26 at 9:37 a.m. New York time. Pfizer rose less than 1 percent to $30.50, after increasing about 35 percent in the last two years as it benefited from the revamping that focused it into three units: two for new drugs, and one for older products.

AstraZeneca Treatments

AstraZeneca in January announced an agreement with Immunocore Limited to develop the new cancer treatments that use the body’s own immune cells, and it also has several of its own immune-based drugs being tested in multiple cancers. The company’s shares have risen about 32 percent over two years, even as sales have fallen from $33.6 billion in 2011 to $25.7 billion last year, with further losses projected by some analysts as drugs lose patent protection.

While a deal would be highly accretive through cost cutting, Pfizer shareholders may have doubts about AstraZeneca’s pipeline as well as its eroding revenue, said Mark Schoenebaum, an analyst with ISI Group LLC.

“The consensus AstraZeneca model is hugely dependent on pipeline assumptions, as the base business will deteriorate massively by 2020 as several key products go off patent,” he said in a note to clients.

Mega-Mergers

A merger of this reported size would top Pfizer’s 2000 purchase of Warner-Lambert Co. for $87 billion, the industry’s largest deal, according to data compiled by Bloomberg. Pfizer has been at the center of the biggest drugmaker mega-mergers, making up three of the 10 deals worth more than $30 billion in the last two decades.

It would also provide a use for Pfizer’s cash from profits that have been stashed overseas instead of being brought back to the U.S., where they would be taxed at a higher rate. Pfizer had $69 billion in untaxed cash overseas as of last month, according to data compiled by Bloomberg.

A purchase of AstraZeneca could also potentially allow Pfizer to move its tax domicile to the U.K. through a so-called inversion transaction, a move that has allowed other U.S. drugmakers to lower their tax bill.

AstraZeneca shares in London rose 0.6 percent to close at 3,781.50 pence on April 17, giving the company a market value of 47.7 billion pounds. The London stock market was closed for a holiday April 18 and today.

Merger Comments

Since taking over in 2010, Pfizer Chief Executive Officer Ian Read’s answers to whether or not he would pursue a mega-merger such as a deal with AstraZeneca have shifted.

On a January conference call in 2012 he said, “I’m very disinclined to be looking at any possibility of another mega-acquisition. You never say never, but we have all of the science we need.”

In July 2013, when Read was asked on another conference call about the size of deals he might pursue, he replied: “We’ll look at any type of acquisition -- never say never to a larger acquisition that made sense.”

Schoenebaum said there were signs Pfizer could pursue a large target. “Pfizer has been signaling since last summer that, in theory, the company would not be opposed to a larger M&A deal if the numbers made sense,” Schoenebaum said.

To contact the reporters on this story: Drew Armstrong in New York at darmstrong17@bloomberg.net; Aaron Kirchfeld in London at akirchfeld@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Kenneth Pringle, Bruce Rule

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