UK pharmaceutical giant AstraZeneca (AZN) has acquired US rare diseases and immunology firm Alexion in an agreed shares and cash deal valued at $39 billion or $175 a share.
Despite the purported financial benefits of the transaction shareholders seemed sceptical of the roughly 45% premium paid to Friday’s closing price and pushed the shares 6% lower to £76.5.
Investment director at AJ Bell Russ Mould commented,’ you would think AstraZeneca could do without any distractions as it looks to address some of the scepticism which has built up around the Covid vaccine developed in partnership with Oxford University.
‘Perhaps that’s why the market has taken exception to its $39 billion cash and shares bid for US biotech Alexion, with the company also taking on lots of debt to fund the deal.’
Chief executive Pascal Soriot commented: ‘Alexion has established itself as a leader in complement biology, bringing life-changing benefits to patients with rare diseases. This acquisition allows us to enhance our presence in immunology.’
DEAL RATIONALE
Combining AstraZeneca’s expertise in precision medicine with Alexion’s capabilities is expected to lead to the development and commercialisation of a portfolio of medicines addressing the unmet needs of patients suffering from rare diseases.
Of the 7,000 of known rare diseases only around 5% have approved treatments and the market is expected to grow in low double-digit percentages in the future, according to consultancy EvaluatePharma.
The deal is expected to realise annual cost synergies of around $500 million a year from the end of the third year after completion. The deal is expected to complete, assuming shareholder approvals in the third quarter of 2021.
AstraZeneca said it would incur a one-time cash cost of $600 million during the first three years following completion.
EARNINGS ENHANCEMEMT/DEBT REDUCTION
The acquisition is expected to deliver ‘robust and sustainable accretion to AstraZeneca's core earnings per share (EPS) from the outset, with double-digit percentage accretion anticipated in the first three years following the completion of the acquisition.’
It is also expected to ‘significantly enhance cash generation which will support rapid debt reduction overall debt deleveraging.’ Meanwhile dividend cover is expected to be materially enhanced as a result of the acquisition.
HIGH VALUE CURRENCY
While the initial market reaction doesn’t suggest a ringing endorsement of the deal, the fact that AstraZeneca’s shares trade at a premium to the sector does allow the company to use its relatively expensive shares to make ‘financially attractive’ deals.
If the financial benefits come through as expected shareholders could benefit handsomely.
