Shares in AstraZeneca (LON:AZN) slumped on reports the UK pharmaceutical giant has held merger talks with US-based rival Bristol Myers Squibb (NYSE:BMY). Should it come to pass, a combination would create one of the globe’s biggest pharmaceutical groups worth almost $400 billion.
So why is the market cool on the idea? Well, investors and analysts questioned the strategic logic of this potential mega-merger, a deal that would be hugely expensive for AstraZeneca and bring integration risk.
‘Given the strength of AstraZeneca’s growth and innovation profile, we are a bit perplexed,’ said Jefferies. ‘Of course financial accretion can look good and maybe more cash generation would allow for more R&D. But if there is one company that doesn’t need financial engineering, it’s AstraZeneca.’
Pharma powerhouse
According to the Financial Times, the two companies have been in discussions over a potential merger for several months. A deal would create a pharmaceutical powerhouse worth close to $400 billion. The enlarged entity would become the world’s fourth biggest drugmaker by market cap.
A takeover would also boost AstraZeneca’s presence in the US, where the FTSE 100 colossus has committed $50 billion to research and manufacturing by 2030.
In rude health
Last week, AstraZeneca reaffirmed its target of generating $80 billion of revenue in 2030, despite the surprise failure of heart drug treatment Wainua. The firm made the pledge alongside Q2 and H1 earnings which topped analysts’ forecasts.
Like AstraZeneca, New Jersey-based Bristol Myers Squibb is in rude health. Best known for its cancer treatments, the US company also has positive momentum behind it. In fact, Bristol Myers Squibb recently posted forecast-beating Q2 revenues and raised its FY26 outlook.
We are not pharma experts, but we have seen previous ‘transformational’ acquisitions destroy value. Our experience tells us investors are right to be nervous about this potential mega-deal.
AstraZeneca already has a strong existing pipeline, so does Britain’s biggest drugmaker really need to pay up for Bristol Myers Squibb and take on so much extra risk? A Bristol Myers Squibb takeover would likely eclipse AstraZeneca’s 2021, $39 billion acquisition of Alexion, the biggest in its history.
Under CEO Pascal Soriot, AstraZeneca fended off a hostile £70 billion approach from Pfizer (NYSE:PFE) in 2014. Since then, Soriot has successfully rebuilt AstraZeneca’s pipeline around cancer immunotherapies, which are drugs that recruit the body’s immune system to attack tumours.
Only last week, Soriot told reporters said AstraZeneca did not ‘need M&A to deliver’ on its 2030 revenue target. Furthermore, a cross-border takeover would invite political scrutiny as well as antitrust hurdles, given that both businesses have large cancer divisions.
And as the Financial Times explained, a deal would intensify British fears that the UK’s largest companies are pivoting away from the country. In June, AstraZeneca completed a direct listing in New York which delivered another blow to the shrinking London stock market.
Learn more about Astrazeneca here: https://www.astrazeneca.com/investor-relations.html
