Pfizer-AstraZeneca deal not quite dead yet

Pfizer Inc may have called its $118 billion bid for AstraZeneca Plc a "final" offer, and its British rival sees no prospect of a deal being revived. But Wall Street isn't ready to call in the undertakers.

"The deal is wounded, but perhaps not dead," said Mark Schoenebaum, an analyst with ISI Group in New York.

Morningstar analyst Damien Conover in Chicago said the odds of an AstraZeneca purchase had fallen well below the 50% mark.

AstraZeneca shareholders, some of them already expressing their disappointment over the company's rebuff of Pfizer, may still pressure the board to reconsider, analysts and fund managers said on Monday. That could force the British company to engage with Pfizer, the largest US drugmaker.

If they don't, Pfizer could come back with a new price in six months' time as prescribed by UK takeover rules.

"I still have to believe this deal is far from dead," said Raghuram Selvaraju, healthcare equity research analyst with Aegis Capital in New York, noting that substantial stakeholders on both sides want the deal to happen.

"If Pfizer can tweak its bid a little bit more, then AstraZeneca shareholders are getting a very good deal, and they should take it," Selvaraju said. "They're really not that far apart as far as I can tell."

When Pfizer delivered its "final" cash-and-stock offer of 55 pounds per share - or around 70 billion pounds - on Sunday, it said it would walk away rather than go directly to shareholders in a hostile takeover maneuver. AstraZeneca management had indicated any offer below 58.85 pounds per share undervalued the company.

"It seems like Pfizer was very adamant about wanting to do the deal. The latest salvo of discussion suggests the chances have declined, but they're not zero," said Les Funtleyder, author of "Healthcare Investing" and a consulting partner in U.K.-based Bluecloud Healthcare consulting firm.

Pfizer spokeswoman Joan Campion said in an emailed statement: "The fate of the deal is now up to AstraZeneca's shareholders. We believe our final proposal represents compelling and full value for AstraZeneca shareholders."

If the deal goes through, it would create the world's largest drugmaker.



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One of the primary reasons driving Pfizer's bid for AstraZeneca is the UK's significantly lower corporate tax rate, which Pfizer could take advantage of if it were allowed to redomicile in Britain. Those kinds of savings would not be available if it chose another takeover target.

Len Yaffe, portfolio manager of the San Francisco-based healthcare fund StockDoc Partners, which has Pfizer holdings, said he believes Pfizer should focus on building its pipeline of drugs in development rather than tax engineering.

"Where they would get a better return in the long term, it would make sense for them to buy," Yaffe said, citing large biotech companies such as Regeneron Pharmaceuticals , Gilead Sciences Celgene and Biogen Idec , whose promising new drugs have lifted their stock prices.

Pfizer Chief Executive Officer Ian Read has signaled the company won't consider large US drugmaker acquisitions, given the comparatively high tax rates.

AstraZeneca has been promoting its own pipeline, especially its cancer immunotherapy drugs, in making the case that Pfizer has undervalued the company. CEO Pascal Soriot forecast revenue growing above $45 billion by 2023.

"Pascal Soriot can say whatever he wants about projections that go out 10 years. The only thing we know about such projections is that they will be wrong," Selvaraju said.

For tax-inversion purposes, GlaxoSmithKline with a market cap of $132 billion was the only comparable target, according to Selvaraju.

"GlaxoSmithKline is nowhere near as weak as AstraZeneca," he said. "It almost has to be (AstraZeneca) or Pfizer goes back to playing the waiting game."

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