Mon, 28 Apr 2014
Cost-cutting, tax opportunities, and oncology synergies are motivating factors for Pfizer, and the firms will likely agree to merge, says Morningstar's Damien Conover.
Damian Conover: Pfizer and AstraZeneca confirmed that they are in talks to merge, and while Pfizer offered close to $77 per share for AstraZeneca, AstraZeneca rejected the offer saying that the deal undervalued the full potential of the company.
We think the deal will likely get done, and we think there are three motivating factors for Pfizer. One is cost-cutting. Pfizer can cut a lot a costs from AstraZeneca. Second, there is tax opportunity with this acquisition and that Pfizer could lower its tax rate. And then third, the combination of the two companies really gives Pfizer a strong entrenchment in oncology, and this is a key therapeutic area were Pfizer wants to be in the future.
One important consideration for both Pfizer and AstraZeneca shareholders is the dividend, post the potential merger. As a lot of investors recall following the Wyeth transaction, Pfizer dramatically cut their dividend. We think that Pfizer's strategy and capacity constraints will more likely keep the dividend in place, but that is one area of concern for investors going in to a potential merger.
The next steps are that we think over the next 30 days, there'll be some more announcements. It could take a little bit longer for both sides to agree on the correct price, but we do think this deal will likely complete.