Introducing PfizerKline: Analyst Makes New Case for Merger of GlaxoSmithKline and Pfizer
Published: May 22, 2015
May 20, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
The speculation surrounding a possible bid from Pfizer Inc. for struggling GlaxoSmithKline is heating up, after one closely-watched biotech analyst said in a note this week that Pfizer buying the company would “unlock access to its balance sheet and improve its tax situation.”
Gregg Gilbert, a biotech analyst at Deutsche Bank, wrote in a note to investors “Introducing PfizerKline” that he thinks a deal would be “materially accretive” for both companies.
“We believe that the company has a sense of urgency to create value by leveraging the power of its balance sheet to do needle-moving deals,” Gilbert wrote. “Since media reports in the past have pointed to the potential for a Pfizer/GSK combination, we are revisiting that theme.”
Gilbert estimated that a bid priced at $29.86 a share, via half stock and half cash, which would push up Pfizer’s earnings per share by 10 percent to 16 percent beginning in 2016.
Two weeks ago we asked our readers, with cash to burn, will Pfizer go hunting for Glaxo?
The BioSpace community certainly believes that deal-hungry Pfizer Inc. (PFE) will make a bid for competitor GlaxoSmithKline (GSK), and that bid will come in the third quarter of this year and be priced in the not insignificant $120 billion or more range.
Almost a year after its $119 billion offer for AstraZeneca PLC fell apart in the face of massive opposition from regulators and internal dissent, global drugmaker Pfizer Inc. (PFE) is once again being floated as a potential buyer of another marquee-name British pharmaceutical company: GlaxoSmithKline (GSK).
Now, we know what you think: That 63 percent of 500 respondents do think Pfizer will make some sort of bid for Glaxo, though 37 percent of those were not as sure.
In addition, 48 percent of those polled said they believed Pfizer would tender its offer during the third quarter of 2015, 39 percent said the fourth quarter, and 13 percent said the second quarter.
The most astonishing metrics were in the potential bid price, however: 35 percent of respondents thought Pfizer would offer more than $120 billion for Glaxo, while 26 percent said the price tag would be over $150 billion, 25 percent thought more than $110 billion, and 14 percent said the bid wouldn’t be more than $110 billion.
The argument for a Pfizer/Glaxo marriage had Wall Street ruminating last month.
A column in The Telegraph today said that while some market watchers might consider such an audacious bid “bonkers,” there are plenty of reasons deal-hungry Pfizer might want to merge with Glaxo.
First, Pfizer is still desperate to do a big deal. The company has tens of billions of pounds sitting dormant in overseas subsidiaries, cash that it cannot repatriate to America without being hit by a colossal tax bill,” wrote columnist Ben Markow.
“In addition, it needs access to a bigger pipeline of new medicines. Patents on many of its top-selling drugs are expiring, including Viagra — leaving the products open to competition from generic rivals.”
Markow said that secondly, that Glaxo, despite its market cap, “looks vulnerable to a bid.”
“Although, at £75 billion, it is safely out of the reach of most in the pharma industry, it is less than half the size of Pfizer, Roche and Novartis AG . Although a stretch, such beasts could still conceivably swallow Glaxo,” he wrote.
“One consequence of Pfizer’s bid for Astra, and a string of other bumper takeovers both before and since, is that suddenly almost any deal looks plausible.”
Recent history bolsters Markow’s theory. Pressure from internal decision makers at Pfizer Inc. (PFE) pushed Chief Executive Officer Ian Read to approach Israeli drug company Teva Pharmaceutical Industries Ltd. at the end of 2014 about a possible merger, people familiar with the matter told Bloomberg News at the end of January, but that bid was immediately rejected.
Neither Teva or Pfizer would comment on the story, but Read has said in the past that he is dedicated to building out the company’s businesses via “bolt-on” acquisitions or even wholesale takeovers.
“Certainly I feel a sense of urgency on utilizing our balance sheet and our capital to do deals that are incremental, add incremental value and certainly add revenue growth in the innovative space,” said Read on a conference call with analysts in October. “We are aggressively looking at all alternatives.”
That aggressive pursuit led Pfizer to take an unsuccessful run at acquiring British drugmaker AstraZeneca PLC (AZN) for $119 billion—but that bid, too, fell apart, leaving Pfizer with a stack of cash and frustrated aspirations.
The majority of the respondents in this week’s poll were from the United States, with 78 percent of the 500 participants based in America. The rest hailed from a host of countries including Belgium, Germany, France, Canada, Switzerland, the United Kingdom, Australia, Puerto Rico, Montenegro, Brazil, Egypt, Colombia, Romania, Lithuania, Japan, Ireland, Israel, Greece, India, Thailand, Switzerland, the Netherlands and Singapore. Three percent of respondents declined to identify their country of domicile.
For states, California led the pack, with 17 percent of the poll’s respondents based in that state. Pennsylvania followed with 12 percent, then New Jersey at 10 percent. The rest were distributed throughout the U.S.
Will Mylan Buy Teva, As Predator Becomes Prey?
The complicated three-way takeover waltz being conducted between Pittsburgh, Penn.-based Mylan Inc., Israeli company Teva Pharmaceutical Industries Ltd. and Perrigo Company took another weird turn last week, after Mylan said that while it still views Teva’s unsolicited $40.1 billion bid as too low, it might want to acquire Teva itself eventually. Mylan Chairman Robert J. Coury made it clear that if Mylan is able to cement its deal with Perrigo, it might go shopping again—and this time to buy Teva, not be bought. With dealmaking heating up in 2015, we wanted to know your thoughts: Will perennial predator Teva wind up being prey?