Pfizer bid for GSK ‘has some merits’, says Berenberg


August 1st, 2014

Could Pfizer acquire GlaxoSmithKline as a “plan B” after failing to land AstraZeneca? It would be a stretch but not totally impossible, according to analysts at Berenberg Bank.

GSK’s market capitalisation has slumped to $117 billion (£69.49 billion), or just under Pfizer’s failed offer for AstraZeneca, following weak quarterly results and a warning on full-year profits last week.

Pfizer would have to offer a premium to that, but even if it paid $164 billion, or 20 pounds a share, with $74 billion in cash, it would still end up with a highly earnings-boosting deal, the bank said in a note on Friday.

“This is perhaps a stretch, but not totally unrealistic,” the analysts wrote.

Pfizer, which has a market value of $183 billion, declined to be drawn this week on whether it would renew its bid for AstraZeneca later this year, as it is allowed to do, but said it was still considering big deals.

Buying a large British drug company is attractive to U.S.-based Pfizer because it would slash its tax bill by moving its tax address to Britain, in a process known as inversion.

GSK and Pfizer already work together through the ViiV Healthcare joint venture in HIV/AIDS, which contains one of GSK’s most promising new drugs, Tivicay.

Acquiring GSK would also bolster Pfizer’s vaccine business and give it a leading position in respiratory medicine, even if GSK is struggling with competition in this field. There would be further potential to combine the two firm’s mature products.

But there are also good reasons for Pfizer to think very hard before considering a move on GSK.

The U.S. company is keen to grow in cancer, but GSK has just sold this part of its business to Novartis, and it is instead bulking up in consumer healthcare, a area Pfizer quit some years back.

GSK, meanwhile, has said its complex three-way Novartis deal could create new options, and there has been speculation of a possible break-up of the company several years down the road.

“GSK may just be too large for Pfizer to handle, but as a plan B it has some merits,” Berenberg concluded.

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