Time is money

Time nudges Pfizer & Astra a bit further apart

A deal between Pfizer and AstraZeneca is looking a little harder following the three-month cooling-off period since takeover talks collapsed in May. Time has provided neither of the pharmaceutical groups with a decisive negotiating advantage if Pfizer takes the opportunity to renew friendly talks with its UK peer, as British M&A rules now permit.

Astra has performed pretty well since rejecting Pfizer's 55 pounds-a-share, take-it-or-leave-it bid proposal in May. It has shaken off a Department of Justice investigation into one of its key cardiovascular drugs, Brilinta. Astra has also had some success in the launch of a diabetes treatment in the United States. True, there have been some disappointments in the lab - an important cancer drug failed to be approved - but investors shrugged them off. Analysts have upgraded 2018 revenue forecasts by nearly 5 per cent, having previously been sceptical of Astra's long-term growth projections. This newsflow will have reinforced Astra directors' previous view that the bottom line for any takeover by Pfizer should be a price of at least 58.85 pounds a share, or $124 billion. They could push for more. Political developments also appear to play to Astra's defence. One of the board's concerns during the discussions in the spring was the uncertainty surrounding Pfizer's plans to use an Astra deal to "invert" its tax domicile to the UK. The risks here have arguably grown. U.S. political opposition to inversion is stronger, as evidenced by Walgreen's decision not invert when it bought Boots. Yet the agreed merger between Shire and AbbVie shows target boards can manage inversion risks if properly compensated - Shire secured a generous break-fee pledge from its suitor.

How much does Pfizer boss Ian Read care? He may now have a Plan B. The recent combination of drug groups Actavis and Forest Laboratories, agreed in Feb, has created a $60 billion company big enough for Pfizer to invert into, based in tax-friendly Dublin. Read wouldn't get Astra's prized oncology business, but buying Actavis would be an easier deal. Having an alternative would make it easier for Read to get Astra's shareholders to pressure their board into a deal. Given the shareholder appetite for a combination, and the huge potential financial synergies, a deal still seems probable at some point. But it still looks like a slog for the two sides to come together.