Hold the heartburn pills. It seems AstraZeneca is no longer contemplating a takeover of US rival Bristol Myers Squibb (BMS) to create a $400bn (£300bn) pharmaceutical colossus. On Monday, the UK firm’s shares plunged 9% on the FT’s report of preliminary talks. On Wednesday, Reuters said there are no ongoing discussions. Cue a mini-relief rally in AZ’s share price.
Neither company has seen fit to tell its shareholders what was happening, so it’s impossible to know if the talks were a tentative ‘what if?’ corporate flirtation or something more substantial that has been killed, perhaps, by the lack of enthusiasm on the part of AZ’s shareholders.
The deal – or non-deal – looked weird for the reasons given here earlier in the week. AZ has prospered under chief executive Sir Pascal Soriot for the past 14 years by concentrating on backing its best ideas in the labs in the interests of long-term success, as opposed to playing debt-fuelled takeover games that rely on short-term cost-cutting. Since Soriot proclaims absolute confidence in hitting AZ’s revenue target of $80bn in 2030, there is no obvious reason to divert from the winning script. And, given BMS’s revenue headache in the next few years as a blockbuster cancer treatment goes off patent, the target looked odd, never mind the current quality of its cashflows.
There are possible counter-arguments, naturally. Both companies are very big in oncology, so there could have been an opportunity to establish multi-year dominance in a core pharma field if competition regulators could be persuaded. Maybe the crossover meant potential cost savings would have been bigger, or easier to achieve, than is normally the case. Perhaps Soriot spotted potential in BSM’s drugs pipeline. Or just an opportunity to accelerate his ambition for AZ to generate half its revenues in the US, the world’s biggest and most lucrative market for pharma firms; the current share is 43%.
Whatever it is, Soriot should shed some light on whether he sees mega-deals as any possible part of AZ’s future. It’s one thing to take a strict “no comment” approach to individual takeover tales. But most AZ shareholders surely assume they are invested in a company that doesn’t do bet-the-balance-sheet mega-deals. Rare diseases specialist Alexion, bought by AZ in 2021 for $39bn, was big – but not in BMS’s $133bn league. And the clear rationale in that case was to boost innovation.
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The worry is that the pull of the US is dominating strategic thinking as Soriot, at the age of 67, enters his final years (probably) at the helm. Or maybe there is an emerging analysis that AI is changing the pharma game. Greater transparency on corporate thinking would be useful. Soriot has always presented AZ as the last company in need of a transformative deal. If he is actually flexible on the idea, shouldn’t shareholders know?
