Pfizer may have to pay more cash and top $105 billion to win AstraZeneca

Tue Apr 29, 2014 10:04am EDT
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By Ben Hirschler and Simon Jessop

LONDON (Reuters) - U.S. drugmaker Pfizer (PFE.N: Quote) will need to raise its bid for AstraZeneca (AZN.L: Quote) to around $105-110 billion and increase the proportion of cash in the offer to win its British rival, investors believe.

After showing his hand and pressuring his smaller competitor on Monday by disclosing two bid approaches, both of which were rebuffed, Pfizer CEO Ian Read has until May 26 to "put up or shut up" under UK takeover rules.

Importantly, after a jump in Pfizer shares, Read knows he has the backing of many of his own shareholders, while the threat of a counterbid does not appear imminent.

Read and his team will be using the time available to consider how they can sweeten an offer made in January worth 58.8 billion pounds ($98.8 billion), or 46.61 pounds a share, comprising 30 percent cash and 70 percent shares.

AstraZeneca said that offer fell "very significantly" short and it specifically flagged the small cash component, which would leave investors exposed to the risks faced by Pfizer in executing an ambitious mega-merger.

So far, the British group has refused to talk to Pfizer - but it has not ruled out discussions altogether and one person close to the company said the cash component of any fresh offer would be key in determining if there was engagement in future.

Cash is uppermost in the minds of AstraZeneca shareholders, too.

"For it to move forward from here, they (Pfizer) need to find a way of getting Astra management engaged and that feels like it needs a specific value being applied to the group, and it needs the cash element to be higher," said Alastair Gunn of Jupiter Fund Management (JUP.L: Quote), which is a top-20 investor in AstraZeneca.   Continued...

The Pfizer logo is seen at their world headquarters in New York April 28, 2014. REUTERS/Andrew Kelly