Pfizer (PFE) appears unlikely to make a fresh bid for AstraZeneca in 12 days time, when an enforced cooling-off period ends, and the U.S. drugmaker is now weighing other less risky targets.
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People with direct knowledge of the situation said Pfizer has been reviewing different takeover scenarios with a U.S. investment bank ahead of Nov. 26, when it is allowed to renew its pursuit of AstraZeneca under UK takeover rules.
This includes a close analysis of the benefits of a tax-saving deal to buy Dublin-based generic drugmaker Actavis <ACT.N>, which has a market value of around $64 billion against AstraZeneca's $94 billion.
"I am pretty sure that no-one at AstraZeneca is ready to agree a friendly deal," said a banker who met with the British company recently and has insights into Pfizer's strategy.
"The hurdles are now getting bigger and bigger. A deal would take longer and would be more expensive. In that context, Actavis is becoming more attractive, although it would not be a great story," he added, explaining Actavis would not offer the same synergies and opportunities in oncology as AstraZeneca.
Pfizer's Chief Executive Ian Read told analysts in October that the company remained interested in lowering its tax bill, despite a U.S. clampdown on companies using so-called inversion deals to move their tax base overseas.
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"We still believe that on a case-by-case basis there is meaningful value to be had from inversions," Read said.
AstraZeneca Chief Executive Pascal Soriot, however, said last week that the risks of inversion deals had increased markedly since the U.S. rules changes, as evidenced by the collapse of AbbVie's <ABBV.N> $55 billion plan to buy Shire <SHP.L>.
Many investors agree with that reading.
"I would not put it (the chance of a new Pfizer bid for AstraZeneca) at more than a 20-30 percent probability," said Norbert Janisch, portfolio manager at Raiffeisen Capital Management in Vienna, which is a shareholder in AstraZeneca.
AstraZeneca has been buoyed recently by progress with new drugs but its shares, which are trading 25 percent above the level before news of Pfizer's interest emerged in April, still contain a takeover premium.
The political difficulties of staging what would be the biggest ever foreign takeover of a British company also remain considerable, with a general election in May 2015 that the opposition Labour party, which opposed Pfizer's earlier bid, could well win.
It all means Pfizer would, once again, have to try for a friendly deal, and analysts doubt AstraZeneca's board would come to the table for less than 60 pounds a share, against 47 pounds at present.
Pfizer's problem is that the tax advantages of buying AstraZeneca are now considerably less than in May, when its 55 pounds-a-share offer was rejected.
The U.S. group's need for a deal remains, however, given its vulnerability to cheaper generics and its relatively weak line-up of experimental medicines, which is spurring Read and his lieutenants to look at other options.
"The truth is that Pfizer has never stopped looking at targets in Europe after the AstraZeneca debacle," said one banker familiar with Pfizer's strategy.
AstraZeneca, meanwhile, plans to set out its stall at a Nov. 18 investor day. This will include an update on experimental drugs in the hot research area of cancer immunotherapy, which involves boosting the immune system to fight tumours.
(Additional reporting by Anjuli Davies and Carolyn Cohn; Editing by Ben Hirschler and Mark Potter)