Zeneca Shareholders Clear $34.9 Bln Astra Purchase (Update1)
Bloomberg News
February 18, 1999, 8:36 a.m. ET
Zeneca Shareholders Clear $34.9 Bln Astra Purchase (Update1)
(Adds vote margin in 5th paragraph, Glaxo denying it's been in
takeover talks with Zeneca in 7th, Astra shares in 11th, details
throughout.)
London, Feb. 18 (Bloomberg) -- Zeneca Group Plc shareholders
approved the drugmaker's $34.9 billion purchase of Sweden's Astra
AB, paving the way for the second-biggest European drug merger.
Zeneca, Britain's third-biggest drug company, agreed in
December to buy Astra, Sweden's biggest drugmaker, in an all-
stock transaction, the latest in a series of consolidation moves
in the $244 billion global drug industry. Astra's shareholders
have until March 18 to accept Zeneca's offer for their shares.
The link-up would create a company with $17.3 billion in
sales and pro forma pretax profit of $3.46 billion. Leading drugs
include Losec, Astra's ulcer treatment, and Zestril, Zeneca's
hypertension drug. The transaction is currently worth a little
less than the merger of Ciba-Geigy AG and Sandoz AG to form
Novartis AG in 1996, which was valued at $36 billion.
''The vote paves the way for regulatory approval and
approval by Astra shareholders,'' said Peter Cartwright, an
analyst at Williams de Broe in London. ''Given the industry's
consolidation and the fact that there is no other deal on the
table for now, it's in the interest of shareholders to vote in
favor of the merger.''
At the meeting, the takeover was approved by a margin of
about 100-1 of the votes cast.
Follow the Trend
The merger, expected to be completed by June, is the latest
in a spate of combinations in the European drug industry.
Companies say they need to combine to cut costs and acquire more
marketing clout to compete with the leaders in the
pharmaceuticals industry.
Glaxo Wellcome Plc Chief Executive Robert Ingram -- asked
today if his company had approached Zeneca to discuss combining
the two drugmakers since Zeneca agreed to buy Astra -- said it
had not. Analysts had speculated Glaxo, the world's No. 2 drug
company, might try to buy its smaller rival to prevent it
becoming a more effective competitor. Ingram was speaking at a
press conference on Glaxo's 1998 earnings.
The changing economics of drugmaking -- particularly the
rising cost of drug development -- made it logical for Zeneca and
Astra to seek a partner, analysts said. They warned, though, that
both companies' top-selling drugs face patent expiration in 2001,
an event that invariably hurts sales. Each company would have
done better to find a partner less exposed to patent expirations,
some said.
The transaction was valued at $37 billion at the time of the
announcement in December. Since then, Zeneca's shares have fallen
5 percent, lowering the value of the purchase.
''I don't think they have convinced the market they will get
the growth out of it that they predict,'' said Stephen Ewing, an
analyst with WestLB Panmure.
Zeneca shares fell as much as 31 pence to 2,545 pence. Astra
rose 1.5 kronor to 160.5
Dissident Shareholders
The transaction now depends on 90 percent of Astra
shareholders accepting Zeneca's offer to exchange their stock for
shares in AstraZeneca. Astra has said shareholders representing
more than 20 percent of the company have accepted the plan,
including Investor AB, SEB AB, Nordbanken AB, AP Fund, Swedbank's
Robur fund and Scandia AB.
One sticking point may be persuading smaller Astra
shareholders. Aktiespararna, a shareholder group representing
about 117,000 shareholders, rejected the offer last month and
again today, saying the transaction is too risky and unfavorable
to Astra. The association plays an advisory role only for its
members, however, who hold about 10 percent of Astra.
Although Aktiespararna's opposition attracted attention,
analysts said it may fail to sway many of its own members.
''The dissident group grabbed headlines but in the end I
think Astra shareholders are bound to give their assent,'' said
Williams de Broe's Cartwright.
In addition to shareholders, the companies still need to win
antitrust approval in Europe and the U.S. Zeneca this month said
EU regulators delayed their decision the Astra purchase by two
weeks until March 1. They also said the U.S. Federal Trade
Commission wanted more information on it. Even so, the company
said it remained optimistic an agreement can be reached.
Losing Patents
The biggest challenge ahead, analysts said, will be
overcoming the sales drop after the expiration of patents on
Zeneca's Zestril, which generated $1 billion in sales in 1997,
and Losec, which generated $2.72 billion for Astra that year. The
two drugs made up 32 percent of the companies' combined sales in
1997.
Still, analysts say AstraZeneca, which will be based in
London, is likely to achieve its cost-saving targets of $1.1
billion within three years through job cuts, factory closures and
other measures. The new company plans to slash about 6,000 jobs,
or 11 percent of the combined workforce.
AstraZeneca said it will be the world's third-biggest
pharmaceuticals maker behind Merck & Co. of the U.S. and Glaxo
Wellcome. Based on prescription-drug sales alone, it will rank
No. 6 behind Johnson & Johnson of the U.S.
London-based Zeneca is offering 0.5045 share in the enlarged
company for each Astra share, with one AstraZeneca share being
equal to one share in Zeneca. At the time the purchase was
agreed, that represented a 12 percent premium over Astra's
previous share price. Zeneca shareholders will own 53.5 percent
of the new company.
AstraZeneca's chief executive will be Zeneca director Tom
McKillop, and Percy Barnevik, the chairman of Astra shareholder
Investor AB, will be chairman. The 14-member board of directors
will be evenly split between former directors of Astra and
Zeneca.
--Reto Gregori in the Frankfurt newsroom (49-69) 92041-146, Dane
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