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Analysts Believe Vulnerable GlaxoSmithKline (GSK) May Be Pfizer (PFE)'s Plan B

8/4/2014 6:39:26 AM

Analysts Believe Vulnerable GlaxoSmithKline May Be Pfizer Inc.'s Plan B Analysts: Pfizer Could Buy GlaxoSmithKline
August 4, 2014
By Mark Terry, Breaking News Staff

Analysts with Berenberg Bank speculated that U.S. pharmaceutical giant Pfizer (PFE) might be in a position to bid on UK-based GlaxoSmithKline (GSK). Pfizer recently made a failed £70 billion offer for AstraZeneca (AZN), which was rejected by the UK-Swedish firm. While Pfizer must hold off for a six-month “cooling off” period before making another offer for AstraZeneca, analysts floated the idea of a shot at GSK.

GlaxoSmithKline’s market value recently dropped due to disappointing quarterly results and a profit warning which combined to push GSK’s value to around £68 billion. The Berenberg analysts point out that Pfizer would have to bid $164 billion and come up with $74 billion in cash. “This is perhaps a stretch, but not totally unrealistic,” they said.

At least part of Pfizer’s interest in AstraZeneca, and potentially in GSK, is because of those countries’ lower tax burdens. In a “tax inversion,” large U.S. companies acquire a company with headquarters in a country with a lower tax rate and move their headquarters to that country. In some cases this can save billions of dollars in taxes. The Obama White House, however, is taking a hard look at tax inversions.
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From an operational standpoint, Pfizer and GSK are already collaborating on HIV drugs with their ViiV unit. Together they would hold the largest vaccines portfolio in the industry.

On a less positive note, such a deal would unravel GSK’s £11 billion asset swap with Novartis. Pfizer is interested in expanding its cancer drug portfolio, while GSK recently sold that portion of its business to Novartis (NOVN). GSK is also interested in expanding in the consumer healthcare arena, which Pfizer abandoned several years ago.

Moody’s Investors Service announced on Friday, August 1, that they had downgraded GSK’s long-term issuer rating to A2 from A1, triggered by the “the deterioration of GSK’s credit profile” the last six months, and liability issues related to a three-part M&A transaction earlier in the year with Novartis AG.

Of course, a Pfizer bid for GSK is complete speculation. As early as August 26th Pfizer could make a private bid for AstraZeneca. Leif Johansson, chairman of AstraZeneca, though legally restricted on what he can say publically, has indicated that additional deals with Pfizer are still a possibility, and several of the biggest shareholders, such as BlackRock and Schroders, were disappointed the deal didn’t go through. Some GSK board members have publicly stated they would have been open to a slightly higher Pfizer bid of about 10 percent, or £58.50.

Read more recent M&A news here.
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