AstraZeneca (LSE: AZN) (NYSE: AZN.US) issued a point-blank rejection of Pfizer‘s latest £50 per share offer earlier today, sparking speculation that Pfizer will now launch a hostile bid for the UK firm.
AstraZeneca’s board said that the proposed terms are “inadequate, substantially undervalue AstraZeneca and are not a basis on which to engage with Pfizer.“
However, Pfizer is a £117bn company with $32bn of cash in the bank — it appears to have both the financial firepower and the determination to do a deal. Pfizer may now approach AstraZeneca shareholders directly, either with the same offer, or an improved proposal.
Given this, I think it’s worth taking a closer look at some of the key numbers underlying today’s £50 per share offer.
1. £15.98
Pfizer is currently offering to pay 1,598p in cash for each AstraZeneca share. But this is only 32% of Pfizer’s offer, the rest of which is in the form of shares in the new company, which will effectively be an enlarged version of Pfizer.
This means that if you’re an Astra shareholder and the deal goes through, you will be heavily exposed to the ongoing performance of the combined firm, which will be weighted towards Pfizer’s existing business, not AstraZeneca’s.
2. P/E 13.9 & 3.3% yield
Pfizer shares currently trade on a 2014 forecast P/E of 13.9, and offer a prospective yield of 3.3%.
I think it’s reasonable to assume that the shares in the combined company would look similar to today’s Pfizer shares, so this valuation gives Astra shareholders an idea of what they might expect, if the deal were to go ahead.
3. £55
Pfizer could reduce its corporation tax rate from 35% to 21% by moving its base to the UK, and this is seen as the firm’s main motivation for the deal.
City analysts are already speculating that Pfizer could make a further bid, of up to £55 per share. As the US firm has around $32bn of cash on its books, it could easily afford to pay a little more to secure the deal, if necessary.
What happens next?
Despite its firm rejection of the Pfizer offer, the AstraZeneca board is bound to be getting pressure from some of its shareholders to negotiate — and Pfizer has also been talking directly to major AstraZeneca shareholders, some of whom might already have pledged their support for a takeover.
AstraZeneca’s share price didn’t budge when the firm announced it was rejecting the offer, which suggests to me that the City is still fairly confident that some kind of deal will be agreed.