Zeneca / Astra pharmaceutical merger: (BGEN should get a kick from this)
Zeneca and Astra plan $70bn merger
By William Lewis in New York, Tim Burt in Stockholm and David
Pilling in London
Zeneca, the UK drugs group, and
Astra, the Swedish drugs pharmaceuticals group, are
expected today to announce the largest-ever European
merger.
If successfully completed it will create a company with a
market capitalisation of approximately $70bn, making it
one of the world's largest pharmaceutical groups. At
yesterday's market close Zeneca had a market
capitalisation of $39bn and Astra $31bn.
Last night, following inquiries by the Financial Times,
Zeneca said that it was in advanced merger talks with
Astra. but declined to comment further. However A
spokeswoman for Zeneca said: 'Following recent
speculation, the boards of Astra and Zeneca announce
that they are in engaged in advanced discussions
regarding a possible combination of the two companies
in a merger-of-equals transaction.'
People close to the transaction deal in London and
Stockholm said they expected the all-stock merger deal
to be announced this morning.
The combined company would have estimated annual
sales this year of approximately $16.2bn and pre-tax
profits of $3.59bn.
The expected Zeneca-Astra deal follows the
announcement that Germany's Hoechst and France's
Rhone-Poulenc are to merge their life science
businesses into Aventis, and that Sanofi and
Synthelabo, two medium-sized French groups, are also
to merge.
The wave of mergers is being fuelled by the need to
spend an average of $500m on each new drug product,
only a few of which go on to become $1bn blockbusters.
Rapid advances in biology, particularly in the field of
genomics, are presenting companies with hundreds of
new drug leads, stretching their R&D budgets even
further.
However a handful of mega-deals have collapsed after
being announced, including the proposed merger of
SmithKline Beecham and Glaxo, and Monsanto and
American Home Products.
In recent months Astra has made clear its desire to link
with another leading drugs company and its chief
executive Hakan Mogren has gone as far to flag Zeneca
as the Swedish group's preferred partner.
Earlier this year Astra cleared the way for a merger by
negotiating to acquire control of its US joint venture from
Merck, one of North America's largest drug
manufacturers.
In recent days Mr Mogren is thought to have played a
pivotal role in persuading Investor, the investment vehicle
of Sweden's Wallenberg business empire, to accept the
deal with Astra.
Investor, which controls 12 per cent of Astra's voting
shares and 10 per cent of the capital, was yesterday
said to have responded coolly to the initial merger
proposal. Astra represents 27 per cent of Investor's
share portfolio and has been one of the main factors
behind its recent growth.
For the merged group, Astra will contribute its
blockbuster anti-ulcer drug Losec, the world's best
selling prescription drug.
The Swedish group also boasts a large presence in
Europe, where sales rose 10 per cent to SKr18.8bn in
the first nine months of the year. For the group as a
whole, pre-tax profits rose from SKr10.5bn to SKr11.3bn
on sales up 20 per cent to SKr39.1bn for that period.
Zeneca, which last month announced it intended to sell
its specialty chemicals unit, offers a strong product
stream in North America. Worldwide it has particular
strength in cancer prevention, where it ranks second in
the world, as well as in the $35bn cardiovascular market,
where it is fourth.
Last year, Zeneca's pre-tax profits rose 7 per cent to
£1.08bn on sales of £5.29bn, of which about £700m
came from specialty chemicals.
Nevertheless, analysts have been concerned that
Zeneca's drug pipeline may dry up in the short term and
it remains unclear whether Astra, which has even bigger
patent-expiry problems of its own, will effectively fill that
gap.
Zeneca also has a big agro-chemicals business, which
accounts for 30 per cent of the UK group's sales and 20
per cent of its profits. It may now be sold off.
Expectations of an imminent merger announcement have
prompted a 7.4 per cent increase in Astra's shares over
the past month. Yesterday in Stockholm, Astra's most
commonly traded A shares rose SKr4 to SKr151.
Zeneca's stock price closed at £24.76 last night, up 2.4
per cent on the day.
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