AstraZeneca shares soar after Pfizer confirms bid talks

The shares in the pharmaceutical company AstraZeneca have risen by more than 14% on Monday, after the US giant Pfizer confirmed that it has an interest in a takeover bid. The UK-based drug maker has been contacted by Pfizer over a multi-billion pound bid. If this deal turns out to be successful, this would be the biggest ever takeover of a UK firm by a foreign company.

The initial offer that Pfizer made was in January 2014 and it was worth £58.8bn. However, it was rejected because according to AstraZeneca this offer seriously undervalued the firm which has more than 51,000 staff. Nevertheless, AstraZeneca pointed out that it believes that its strategy as an independent company will create significant value for shareholders on its own.

For the current offer, Pfizer said that this highly compelling opportunity may realize a significant premium and suggests considerable cash payment. Furthermore, Pfizer reassures the AstraZeneca shareholders that they will be able to have major rights in any combined company. Comparing with other pharmaceutical deals, any bid of this size is expected to come at a premium of approximately 30%, most probably on AstraZeneca’s intact share price from 17 April of £37.81. At the moment the market value of AstraZeneca is more than £50bn which means that it would cost Pfizer around £65 bn. Pfizer has enough cash and a lot of it is off-shore, so it is protected from American tax laws. However, if AstraZeneca does not engage, the bid can become unfriendly. Thus, this bid talks will be a real battle. Nevertheless, Pfizer have emphasized that it has a great respect for AstraZeneca and its proud heritage.

Pfizer thinks that the fact that AstraZeneca has refused to engage so far means that the company is considering its options right now.

AstraZeneca is indeed a global player that manufactures drugs in 16 countries. Its main focus is on treatments for diabetes, cancer, asthma, as well as antibiotics. According to its own statistics, it reported £25.7bn in sales for the past year, with £3.3bn in pre-tax profit. Only in the UK the company has eight sites with nearly 6,700 staff. However, recently the company has experienced a drop in first quarter profits, mainly due to patent losses on important medicines. In other words, the patents on some of its older medicines have expired.