The AstraZeneca Pfizaster

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The latest offer from Pfizer (NYSE:PFE) for AstraZeneca (LSE:AZN) (NYSE:AZN) has turned into a Phizaster. No matter how loudly one shouts “No,” it usually causes other voices to cry out in protest. Whilst the original “No” was directed at Pfizer, now the AZN board is saying “No” to its own shareholders. That’s probably not a good thing. Politicians and pirates will tell you that, when constituents are affected, the more you stand against the crowd, the more likely you will find yourself without a seat or, perhaps walking the plank.

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Outside Observations

In my humble opinion – I always keep my opinions humble, because I’ve so often been humbled by sharing them – facts are hard to see because the dust hasn’t settled. For example, although I can’t tell whether it is the dust or the drive to catch the early worm, one publication’s headline this morning was, “AstraZeneca’s Shares Surge Following the Rejection of Pfizer’s Bid.” Whoever wrote that must have been holding his charts upside down. Either that or it was a bad joke.

AZN share price on the London Exchange dropped from £48.18 to £41.98 from last Friday (16 May) to Monday (19 May). It took until 4:00 pm GMT yesterday to gain ground back to £44.42. The AZN share price is currently back down to £42.89, tracking below it 90 day moving average nearly all day. What kind of surge is that? And all of this is in the most active trading in the past 12 months. Don’t believe everything you read (unless it is on ADVFN).

The AZN share price is performing in virtually the same manner on the New York Exchange. There the AZN share price plunged from $80.20 on 16 May to $71.91 on 19 May. Although it gained some modest ground on Tuesday and Wednesday to $75.12, it has drawn back down to $72.09 as at 4:45 pm GMT.

Inside Issues

Meanwhile, shareholders are at considerable odds over the rejection of the Pfizer offer. There are those that prefer a bird in hand to two in the bush. Some say take the offer. Others say wait and take the risk.

The biggest objection (or at least the most publicized) is coming from Blackrock (LSE:BX), whose investments represent an 8%, and the largest, stake in the company. Legal and General (LGEN) has sent a written communiqué to AZN urging it to accept the Pfizer offer. LGEN is AZN’s second-largest shareholder.

Schroders (LSE:SDRC), which owns just over 2% of AZN, made their position clear and included a subtle reminder that the board is responsible to the company’s shareholders. They said, “As long term shareholders, we are strong believers in AstraZeneca and the potential for its innovative growth pipeline, however, given the increase in the offer we would encourage the AstraZeneca management to recommence their engagement with Pfizer, and subsequently their shareholders.”

On the other hand, supporters of the rebuff included Fidelity (LSE:FDSA), Threadneedle (LSE:UKT) and Aberdeen Asset Management have lent their support to AstraZeneca’s board.

Another Side

Although he noted his good pleasure with AZN’s rejection of Pfizer’s offer, Richard Buxton of Old Mutual Global Investors (LSE:OML) share some sage advice. “Experience teaches that events do not always play out as intended and the value a board perceives in its future prospects is not always realised. A way to reassure investors the board is convinced of the long-term value of its business is through alignment of interest. If the remuneration committee of AstraZeneca – and, indeed, any company rejecting an offer in favour of long-term independence – was to recalibrate any current and future incentives to vest only at the level of the spurned takeover, it would provide comfort to shareholders that if things do not play out as the management envisage, the executives have shared in the pain felt by shareholders at the lost opportunity.”

If nothing else, AstraZeneca’s board should listen to what Buxton had to say about explanative diplomacy.

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