AstraZeneca shares fell nearly 6% as investors worried about the Anglo-Swedish drugmaker’s acquisition of Alexion for $ 39 billion, the biggest pharmaceutical deal since the start of the pandemic coronavirus.
AstraZeneca shares were down more than 8% at one point on Monday, with some shareholders skeptical of the tie-up, which values Alexion at $ 175 per share, a 45% premium over the US company’s previous closing price biotechnology.
“The financial attractions are clear but the strategic rationale less and the management’s track record in mergers and acquisitions [is] probably unproven, ”said one of AstraZeneca’s 30 largest shareholders.
The cross-border transaction, a rarity in the Covid-19 era, comes after months of speculation that AstraZeneca CEO Pascal Soriot was looking for a significant target.
AstraZeneca approached Alexion this summer, which led to a four-month “back and forth”, mostly focused on the price of the title, according to a person familiar with the matter. Alexion also insisted that more of the deal be in cash, the person added.
But it became clear that AstraZeneca could no longer pay cash for such a large transaction, and neither could most of the big pharmaceutical companies. “This takes AstraZeneca away from the M&A market for a while,” the person said.
Alexion had been under pressure from activist investor Elliott Management to go on sale since May, arguing that the rare disease specialist should benefit from a sharp rise in the valuation of biotech stocks during the pandemic.
A major Alexion shareholder said he was “in favor of the deal” and found AstraZeneca “a good fit” for the company. Shares of Alexion rose more than 30% to $ 159.
Not all AstraZeneca shareholders were hostile to the deal. “Looking ahead to what they might need in the long term, AZ is looking to secure the business and expand the platform on which it operates,” said another Top 30 investor. “Their reasoning has been well explained by management and we think it’s a good deal for them.”
Dan Mahony, co-director of healthcare at Polar Capital, which owns a stake in AstraZeneca, said the deal shows there is still considerable value to be extracted from biotech.
“For some of these large cap biotechs, people were worried about growth and valuation. [The deal] shows that there is still some value in there and a lot of cash generation, ”he added.
Alexion’s portfolio of rare disease drugs may be easier to sell than other drugs in an environment in which governments and private health systems increasingly demand evidence of drug efficacy, a said Mr. Mahony.
“The beauty of some of these rare diseases is that it’s easier to show the value of these drugs. If you can effectively heal a child, it shows obvious value and there is no discussion of what it’s worth, ”he added.
Raju Prasad, analyst at William Blair, said: “While the acquisition premium for Alexion is slightly lower than our comparable deals, we believe the potential for a higher bid after this announcement is unlikely.”