Rose-tinted glasses needed to acquire AstraZeneca, says Societe

22nd Apr 2014 10:41

Societe Generale has kept a 'sell' recommendation on AstraZeneca (AZN), questioning the reasoning behind a potential takeover by US pharmaceutical peer Pfizer.Nevertheless, while the recent speculation "may be unfounded in reality", M&A chatter may help to support the shares in the short term, Societe said.The rumours, first reported by The Sunday Times, said that the two parties had held informal talks over recent weeks, leading to a tentative $100bn approach for AZN, representing a 25% premium to the recent share price. AZN, however, is reported to have rejected the offer.Societe said: "In our view, given AZN's forecast revenue and earnings profile through 2018-2019 (an earnings decline until 2018), which is well appreciated, any company seriously wishing to acquire AZN would have to have a rose-tinted view of the cost-cutting potential from such a deal and a rose-tinted view of AZN's R&D pipeline potential."The bank said that the cost-cutting potential from such a deal is "relatively limited", given how much AZN has already reduced its cost base to date. Meanwhile, the potential of the R&D pipeline would require "very aggressive assumptions" for any company to justify acquiring AZN, "especially at a premium to the current share price"."That said - as with the Chief Executive Officer's assertion that the dividend is safe and therefore, implicitly, that the shares are be viewed as a bond in the medium term (safe yield) by many investors - the mere mention of M&A possibility, however unlikely from a strategic, fundamental and valuation perspective, may be enough to support the shares."The bank said that ahead of results from a clinical trial next month, such speculation - "perhaps unfounded in our view" - may be enough to move the share higher despite the stock's current valuation.Societe kept a 3,126p target price for AZN's shares.The stock was 7% higher at 4,045p by 10:40 on Tuesday.BC