I was considerably relieved when I read that AstraZeneca (LSE: AZN) (NYSE: AZN.US) had rejected the largest and final bid from Pfizer.
The deal would have netted a tempting £55 per share for AstraZeneca shareholders, giving them a premium of around 45% on the pre-bid price. And who wouldn’t have wanted a nice profit like that? Well, those who believe there’s better long-term value in keeping AstraZeneca as an ongoing business, that’s who.
Sure, shareholders could have taken the cash and reinvested it in, say, GlaxoSmithKline, and have the best of both worlds — a quick profit and a long-term interest in a top UK-based pharmaceuticals firm.
Strong management
But since Pascal Soriot has been in charge at AstraZeneca, I’ve been impressed. He’s very much not a short-term man, and has set his sights on a fundamental restructuring of the company that should take it back to sustainable profit growth with a multi-decades horizon. With Pfizer’s reputation for asset-stripping and with tax minimisation as one of its key ambitions, those bold plans — almost certainly along with a significant number of jobs — would be gone.
AstraZeneca’s executives hold fair numbers of shares themselves, and they could have made a pretty penny had they given the nod to the deal — and it is to their great credit that they thumbed their noses at it.Â
Turnaround
AstraZeneca had been losing its way, suffering from the expiry of patent protection on some of its key drugs. Its research into new candidates was really not refiling the pipeline well enough, and the firm had not been able to expand into newer technologies by acquisitions the way Glaxo had.
But at Mr Soriot’s new AstraZeneca, the research bods are the heroes of the hour again, and the firm’s renewed focus on its key strengths and on rebuilding its drugs pipeline is already paying dividends. At the time of the firm’s first-quarter update in April, it had 11 new candidates at Phase III or under regulatory review, with 90 projects out of a total of 104 having reached clinical phases of development.
And we keep hearing of a return to earnings growth sooner than previously expected.
Great future
Pfizer’s offer would have placed AstraZeneca shares on a forward P/E of 22, which looks superficially attractive. But a few years down the line I reckon we’ll be looking back on it as the paltry offer it really was — and at a key contributor to the UK economy continuing to bring in the cash and provide much-needed jobs.
Some institutional investors, including Schroders which owns 2% of the company, are urging a return to talks with Pfizer. Thankfully, AstraZeneca’s board seems no more drawn to being taken over now than they were three weeks ago — I hope they hold their nerve.