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AstraZeneca results presentation at ASCO conference may be factor in Pfizer move now

Good results could boost AZN shares

AstraZeneca’s [LON: AZN] share price did not include potential upside value of its cancer drug pipeline before reports of Pfizer’s [NYSE:PFE] takeover interest, a top-ten investor said. A takeover price closer to GBP 60 per share rather than GBP 50 may be needed to secure shareholder support, he said.

The investor had not yet been contacted by Pfizer, but expected to be contacted. Pfizer confirmed Monday it had submitted a non-binding “indication of interest” in January. It made another approach on 26 April to renew discussions, following leaked reports on the initial approach.

AstraZeneca rebuffed the proposal Monday saying Pfizer’s proposed 30/70 cash-and-scrip offer “very significantly undervalued” the company. Pfizer’s 5 January proposal had an indicative value of GBP 46.61 per share. AstraZeneca shares shot up to close Monday up 14.83% at GBP 46.685.

The investor said that shareholders would want to make sure a deal is at the right price, including the upside potential from the oncology pipeline. Oncology is potentially a mega-blockbuster area, he said, pointing to their melanoma drug pipeline. The blockbuster drug pipeline was not priced in before the bid interest, he explained.

AstraZeneca shares had become “very cheap” relative to its pipeline’s potential, the investor said. Pfizer should not be allowed to share in that value without offering more than its initial GBP 46.61-per-share proposal, he said.

Ian Read, Pfizer’s CEO, touted AstraZeneca’s oncology drug pipeline as a key reason for the takeover interest, alongside a tax inversion and operational synergies, in two conference calls Monday. Combining AstraZeneca’s early- and mid-stage developments with Pfizer’s established business would create a stronger company with a deeper portfolio, Read said.

Pfizer now has a 26 May 2014 “put up or shut up” firm bid deadline under Rule 2.6(a) of the UK Takeover Code.

Pfizer may have an eye on the industry’s key American Society of Clinical Oncology (ASCO) conference beginning 28 May in Chicago, a sector banker said. It may have wanted to get a starting price into the market before this, as AstraZeneca is set to present a round of results on its oncology pipeline at the conference, he said. A good series of results could bump the company’s underlying valuation, the banker said.

AstraZeneca's will present at ASCO numerous scientific abstracts for compounds across its oncology pipeline, including the monotherapy studies for biologics MEDI4736 and AZD9291.

Read told an analyst call Monday that recent asset valuations in the industry and movements in the market prompted Pfizer to move now. An evaluation of Pfizer’s own pipeline and developments in AstraZeneca’s outlook were also factors, he said.

Asset swaps between pharma companies have become the new paradigm in the industry, former Covance CEO and professor at Warwick Business School John Lyon said. The reason for Pfizer looking at a full takeover could be that it has nothing of interest to swap with AstraZeneca, he said. Pfizer is likely to come back with a higher offer, Lyon said.

AstraZeneca’s share price may be fairly valued now, following the takeover speculation, Lyon suggested. This would mean any premium should be against today’s share price.

Meanwhile, Read would not rule out going hostile, but said he would prefer to discuss the potential deal with AstraZeneca’s board. “We believe we’ll be able to make an offer that’s attractive to AstraZeneca shareholders and their management,” he said.

Corporate governance problems at AstraZeneca should not overshadow the value of its oncology pipeline, the investor said. Those problems were highlighted last week when nearly 40% of shareholders voted against AstraZeneca management's remuneration package.

Siemens SIE.XE -2.48% is fanning flames in France.

The German giant is considering barging in on General Electric's GE -0.02% offer for Alstom's ALO.FR +10.93% energy businesses in a deal which could be worth up to €11 billion ($15.2 billion). That isn't exactly what investors had bargained for with Siemens Chief Executive Joe Kaeser. The hope was that he would outline plans to shrink the conglomerate when he presents his strategy next week.

Buying Alstom's energy businesses has some merits. It would keep GE from entrenching itself more deeply in Europe, where Siemens gets roughly half its sales. Siemens also would absorb a major competitor in power generation, doubling its share of global installed capacity to about 50%, estimates Citigroup. C -1.28% And it would take out a big rival in power transmission, leapfrogging ABB to become the largest provider of high-voltage products world-wide.

Another perk of a deal involves Siemens's proposal to swap its high-speed-trains and locomotive operations as part payment for Alstom's energy assets. That would give Siemens a welcome exit for businesses that are a drag on profits and where competition from Asian vendors shows no signs of easing.

The price tag might even look like good value. Assuming a price tag of €10 billion, Alstom's energy assets would be valued at about 8.6 times 2015 earnings before interest, taxes and amortization based on Citigroup estimates. Siemens trades at 12.6 times.

Similar to GE, though, Siemens shareholders can't ignore the hefty risks involved in pulling off this sort of deal in France.

Siemens has already promised Alstom to have no layoffs in France for three years, limiting potential cost savings. And Alstom already makes profit margins in power generation that are one-third lower than Siemens's. A deal also would mean taking on Alstom's €26 billion order backlog—and executing on its own orders has been one of Siemens' major failings, contributing to more than €20 billion in charges since 2007.

Moreover, a deal could stumble into antitrust considerations, which are greater for Siemens than for GE. For example, in turnkey solutions for gas and steam power plants, Siemens and Alstom would have a combined market share of up to 70%, according to a European Commission decision on another case cited by Exane BNP Paribas. GE's share is at most 10%.

Tempting as Alstom is, it would add more complexity at a time when Siemens investors had hoped for a simpler life.

- Now become evident in the light of recent performance that we may need to reassess the level of risk implicit in the assumptions underlying our forecasts. This may in turn require a material downward revision to expectations, and for us to review the appropriateness of our financing position. We will, therefore, be consulting with shareholders regarding the possibility of strengthening the balance sheet through an equity placing.

Croda International (LSE:CRDA), the UK-headquartered provider of specialty chemicals, is focusing its M&A efforts on bolt-on technology buys, according to CEO Steve Foots.

On the 1Q14 sales and revenue call held on 24 April , Morgan Stanley analyst Paul Walsh asked if the company was close to making a transaction. The CEO said Chief Technology Officer Keith Layden had identified 70 technologies of interest, adding that the company was in “extensive discussions” regarding a number of them.

“But our priority is to look at finding these technology bolt-ons, and some significant technology bolt-ons as well,” Foots continued. “And if they're available, then, great. But it's very difficult, at this stage, to plan for when, but we'll update this on a regular basis.”

He added that Croda did not want its debt levels to fall further and was keen to invest in its business on all fronts.

“We've always had a consistent track record of giving it [cash] back to shareholders. We're not spending it ourselves. And so, we're monitoring this on a fairly regular basis,” the CEO added.

Croda’s activities can be broadly classified into three sectors: Consumer Care, Performance Technologies and Industrial Chemicals. Additionally, the company has a Technology Investment Group function, which identifies and integrates new technology into Croda’s global business structure.

A published report in March said Croda had hired investment banker Anthony Fitzpatrick to advise on strategy. The article mentioned talk of M&A surrounding Croda, but did not cite a source for the speculation.

A December 2013 report by this news service, citing a source familiar with the situation, said Croda was seeking biochemical acquisitions. Buys could target any segment in the company’s current markets, including personal and health care, as well as crop chemicals and nutritionals, the report said.

Croda has retained Foley & Lardner for multiple US-based transactions in the past decade, while Slaughter and May and Eversheds have been used for European deals, according to the Mergermarket M&A database. Croda’s non-executive Director Steve Williams is also a non-executive director of Eversheds.

Eversheds and Slaughter and May were named as Croda’s solicitors on its 2012 annual report, while the company’s 2013 annual report named Freshfields Bruckhaus Deringer as its current legal advisor.

Kantar: Windows Phone ‘Stutters’ Amid Android Price Competition, iPhone 5S Is Apple’s Buffer

According to the latest 12-week figures from Kantar Worldpanel ComTech — a market research division of WPP — Windows Phone accounted for 8.1% of smartphone sales in the 12 weeks to the end of March across the top five markets in Europe (the UK, France, Spain, Italy and Germany), with Android taking 70.7% of sales and iOS 19.2%.

And Europe seems to be Windows Phone’s best market at the moment. In the U.S. Windows Phone took 5.3% of sales, while in Australia it took just under 6%; in China it was 1%; and in Japan, just under 1%.

What’s going on? Put simply, the Windows Phone operating system running Nokia’s and other devices remains a distant third when it comes to smartphone sales in key markets across Europe, the U.S. and Asia.

And that has a double effect. First, in the game of economies of scale, Microsoft will find it more challenging. Second, in the game of mindshare among consumers and developers, it means that Windows Phone devices are for many still not appearing as must-haves either in terms of device ownership, nor in terms of platforms for building new apps and other services.

At issue for Windows Phone is the double pressure of price and volume of Android handsets, with both playing a big role in keeping Windows Phone largely locked out of the smartphone boom. That boom has seen markets like the UK reach smartphone penetration of 71%, with smartphones accounting for 88% of mobile sales. That’s opportunity for those who are clicking with consumers and carriers.

Dominic Sunnebo, a director at Kantar, writes that the main challenge for Windows is that Nokia, very much the main and dominant Windows Phone OEM, has based a lot of its fightback strategy on wooing new smartphone users with entry-level phones. The problem is that these devices have not managed to compete well enough with the Android camp.

“Windows had a tough start to the year as a result of its entry-level Nokia models facing fierce competition from low-end Motorola, LG and Samsung Android smartphones,” he writes.

Even before being taken over by Microsoft, Nokia’s device fate had become inextricably connected to that of Redmond.

“Nokia really is the vast majority of Windows now, so any trend you see for Windows is being driven by Nokia,” Sunnebo told me in an interview. “Essentially Nokia was starting to make some real headway with its entry level Lumia 520, particularly in capturing first time Smartphone buyers and those transitioning across from Symbian….it arguably had the best entry level device.

“Now, we’re starting to see some really compelling competition at this end of the market from the likes of Motorola (with Moto G) and Samsung (heavily discounted S3 & mini models) eating into prime Nokia territory.”

He also points out that moves from up-and-coming Chinese brands to expand outside of their home market — think Xiaomi, Oppo, OnePlus here — are now also going to make the breakthrough challenge even harder.

“There is an increasing realization amongst consumers that the difference between the high-end and low-end is becoming very fine,” he says. “This could play to Nokia’s advantage (it makes great entry level devices), but it certainly won’t be alone in pushing great spec devices at low/mid prices.”

Interestingly, Apple continues to fight the Android juggernaut in its own, high-end way. Sunnebo says that its sales saw a bounce back in Europe, Japan and Australia largely on the “strong performance” of the 5S model at the top of its range.

But “bounce back” and “strong performance” are relative terms: the margin between Android and iOS continues to widen, with Android at over 70% of sales in five of the markets surveyed by Kantar.

Nevertheless, in specific markets Apple continues to trounce Android. In Japan, Apple is still the dominant smartphone brand, with nearly 57% of sales. Specifically, it’s taking 42% of smartphone sales on NTT DoCoMo, 59% on KDDI AU and 81% on Softbank, Kantar notes.

Why? Apple has found the right mix of design, 4G access and device reliability that resonates with Japanese consumers. “Japan’s love affair with Apple shows no sign of fading,” Sunnebo notes. He also points out that this has a knock-on effect for the iPad, with nearly a quarter of Japanese iPhone owners also owning an Apple tablet.

But while Apple has kept a fairly big space between the sizes for an iPad and iPhone, in fact in Asia the real story is about the effect of devices that are increasingly appearing in between the two. In China, it notes that devices with a screen larger than 5” made up 40% of smartphone sales in March.

“It’s clear that phablets really are changing the way Chinese consumers use smartphones,” Sunnebo writes. “More than one in five phablet owners now watch mobile TV on a daily basis, half do so at least once a month, and this is without the widespread availability of 4G. As 4G infrastructure expands in China, the demand for data is going to be unprecedented, paving the way for carriers to boost revenues significantly through larger data packages.”

While Apple has effectively taken a trickle-down approach with older models and those with less storage to court new smartphone buyers, the question remains whether it will choose to sidestep this other trend as well, or jump into it with its own take on the iPhablet.

All good News are priced in, now and still few weeks to go before big announcement. 572/575 level to watch if stock is coming back

Thanks

Laurent

582/586 is a good level to lock some profit and see how the stock is trading...we have few weeks/months before the launch of new products...split effect will also help the stock, but I prefer to take some profit here