Shareholders in AstraZeneca (AZN) could be in line for a large cash windfall if Pfizer (PFE:NYSE) succeeds in buying the pharmaceutical giant. The US drugs peer has finally admitted bid interest following extensive market speculation over the past week. A deal would be the largest takeover of a UK firm by a foreign company.

Pfizer proposed in January to pay £46.61 in cash and shares for the company, yet the target snubbed the approach. The US group now says it has gone back to AstraZeneca to work out a new deal. So far the target hasn't engaged in any talks, says Pfizer.

AstraZeneca says it has considered the latest request for a business combination and concludes that without a specific and 'attractive' proposal, it wasn't appropriate to engage in discussions with Pfizer. The word 'attractive' would imply that it is not completely against a takeover. That explains why AstraZeneca's shares have nudged further up from initial gains, now trading 15% higher at £46.91.

While a successful takeover may still be priced well above the current trading price, many AstraZeneca shareholders would probably be disappointed at a cash and shares takeover structure.

Today's announcement implies that the enlarged business would only be listed in the US. Many UK investors don't feel comfortable holding shares on a foreign exchange. Given that any revised deal is likely to retain its cash and shares structure, AstraZeneca shareholders would find themselves inheriting US-listed stock.

Pfizer says: '"The combination of Pfizer and AstraZeneca could further enhance the ability to create value for shareholders of both companies and bring an expanded portfolio of important treatments to patients. A potential combination with AstraZeneca aligns with Pfizer's current structure and fully supports its existing strategy to build world-class businesses.  The combination would complement our two innovative businesses and our Global Established Pharmaceutical business, allowing us to maintain the flexibility for the potential future separation of our businesses whilst at the same time broadening our pipeline breadth and potential new product launches over coming years.'

The US group reckons a business combination would 'further strengthen our ability to generate strong and consistent cash flow, targeted for both investment in our business and return to shareholders, while at the same time offering an efficient operating structure and the anticipated realization of attractive synergies.'

Issue Date: 28 Apr 2014