The attempted takeover of AstraZeneca (LSE: AZN) (NYSE: AZN.US) by US group Pfizer hasn’t exactly been timely for master investor Neil Woodford, falling as it has between his departure from Invesco Perpetual and the launch of his new CF Woodford Equity Income Fund on 2 June.
Now that Pfizer has decided against pursuing a takeover, Astra’s shares have fallen back from their bid-fever high of over £48 to a bit over £42 today. Nevertheless, the price was below £38 before Pfizer’s interest emerged, meaning Woodford will have to shell out that bit more if he wishes to buy Astra for his new fund.
Ludicrously cheap
Woodford went against the crowd when buying unloved Astra for his Invesco funds some five years ago, and building it into his biggest ever holding. In fact, the UK’s number two drugs group represents a whopping 11% of a portfolio he still runs for wealth manager St. James’s Place.
Woodford says City analysts have had Astra wrong for years, and that while “most fund managers have a time horizon that doesn’t extend beyond the length of their nose”, he saw long-term potential at a bargain price.
Unlike the market, Woodford didn’t believe Astra’s R&D was flawed — “Astra oozes technology, but it doesn’t have a bloke wearing jeans and a t-shirt representing it” — or that the company was in danger of going down the tubes, as a result of the so-called ‘patent cliff’.
He believed Astra’s shares had been marked down to “ludicrously low levels”. As he explained to the Telegraph:
“I wasn’t even taking a risk that the R&D really was incapable of producing new drugs because the share price had fallen so far that even the existing product portfolio would produce enough cash to justify the price I paid for my holding. The R&D was in there for nothing”.
Is Astra still cheap?
Woodford saw Pfizer’s opening £50 cash-and-shares offer as a sign that the market is beginning to recognise the long-term value of Astra. While he said there’s always a price at which selling makes sense, “at the moment it is very distant from what is on the table”. Very distant, mark you — and Pfizer’s subsequent £55 offer still didn’t do it for Woodford.
There was also the issue for Woodford that the deal would have given him Pfizer shares. Despite his longstanding bias towards the pharma sector, he has never held Pfizer: “I wasn’t a Pfizer shareholder before. I was a shareholder in Novartis, Roche, Sanofi and GlaxoSmithKline“.
Lukewarm on the prospect of Pfizeneca, Woodford is enthusiastic about a standalone Astra. He recently told Money Marketing:
“There is a very, very, viable and attractive independent future for AstraZeneca and I believe chief executive Pascal Soriot and his team are absolutely the right people to deliver that”.
So, with Astra’s shares falling back towards £40 now Pfizer has walked away, and £50 being “very distant” from Astra’s worth in Woodford’s eyes, I think there’s good reason to believe that he will be happy to shop for Astra shares when he launches his new fund next month.