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PFE's shareholder-friendly management team has previously stated that the company is open to acquisitions of various shapes and sizes. Regardless of whether PFE decides to split the company into pieces at some point, we believe that the company has a sense of urgency to create value by leveraging the power of its balance sheet to do needle-moving deals. As evidenced by PFE's interest in AstraZeneca last year, one important goal for PFE has been to seek a deal that would maximize access to its balance sheet and improve its tax structure. Since media reports in the past have pointed to the potential for a PFE/GSK combination, we are revisiting that theme and presenting a pro forma analysis of this potential combo. In short, this potential combination could be materially accretive to EPS and DCF, while allowing PFE to unlock access to its balance sheet and improve its tax situation over time. Reiterate Buy.

We conducted a preliminary pro forma analysis using our published model for PFE (Buy, $41) and our colleagues’ model for GSK (Hold; GBp 1540). As a base case, we assumed a purchase price of GBp 1924/share (~US$146bn equity value, US$60/ADR) funded with half stock/half cash (3% interest rate based on current rates for A-rated companies), cost synergies of ~$3.7B (10% of total opex), and a simple blend of tax rates. In this scenario, our theoretical DCF value would climb to $44 (from $41 for standalone PFE), and EPS accretion would be 10-16% from 2016-19. Using a 19% tax rate (in line w/ GSK’s) would yield a $46 DCF value and EPS accretion of 15-21% from 2016-2019. We also note that a lowering of the weighted average cost of capital (WACC) based on a more debt-heavy capital structure could be an upside driver.

Our target price is based on a DCF analysis. We model sales over a 10-year period, then determine a terminal value based on a terminal growth rate (we assume 0% terminal growth rate, which we believe to be a conservative assumption). We discount after-tax profits back to mid-2016 at 8.1%, which we believe approximates the company's weighted average cost of capital. Our target implies that the stock can trade at roughly 16.2x our 2016E EPS. Downside risks include: 1) Ibrance regulatory and/or uptake delays; 2) unfavorable vaccination trends; and 3) negative clinical trial data from ongoing trials.

Pfizer

This is not a new rumour and the size of the companies... with Vods twice the size of Liberty plus the size of the tax assets Vods is in the billions where Liberty in the millions, points to an acquisition of Liberty by Vodafone

The deal would have a share component as one assumes Malone remains involved in the entity. Perhaps all share.

Citi believes that Vodafone could pay $62.5 per share for Liberty Global — Citi estimates that a deal at 18 VOD shares for every Liberty Global share would prove ~11% accretive to Vodafone’s EPS.

At present Liberty fair value consensus is 11pct higher at USD59 per share where as Vods consensus fair value is 1pct higher than current share price.

A Long Liberty/ Short Vodafone trade may start to look attractive

DEAL REPORTER

• Intra-basin consolidation will drive deals

• International investors reemerging onshore

• Gulf of Mexico prospects are mixed

The oil and gas sector could see some big M&A toward the end of this year or the beginning of 2016, said panelists at today's Mergermarket Energy Forum in Houston.

Price stability, at any level, will be the main catalyst for both buyers and sellers to make a move, said Lori Lancaster, managing director, UBS. Deals can get done regardless of whether the recovery in oil prices is a “V,” “W,” or “U,” but what is needed is stability, said Stephen Trauber, vice chairman and global head of energy, Citi.

If the recent upswing in commodity prices represents the middle of a "W" with another downturn afterward, it may take until late 2015 or early 2016 for companies to gain confidence. "Nobody wants to look dumb" by buying or selling at the wrong time, said Trauber.

Whenever sellers become more willing to talk, there is a large number of buyers out there, they said. Independents and majors need to grow by buying, as growth through the drill bit has become more difficult. International buyers are also looking around, noted Robert Gray, partner, Mayer Brown.

Trauber said he expected that the “dam will break” on M&A as early as 2016, and upstream will see large amounts of consolidation.

Intra-basin consolidation is likely to happen before or concurrently with larger deals, he said. Companies with existing takeaway infrastructure and other regional advantages could look at being consolidators, he said. The Eagle Ford, for example, could see further deals. Noble Energy (NYSE:NBL) is unlikely to be satisfied with just the acreage it acquired with Rosetta Resources (NASDAQ:ROSE), and could look to make additional buys, Trauber said.

The Permian Basin is the "hottest" oil and gas basin out there, as existing players want to expand and many companies want to enter, said Citi's Trauber. The Utica is also still "hot" but the Marcellus less so, he said.

Companies that already hold premium acreage within a play, such as Antero Resources (NYSE:AR) in the Marcellus, could be potential consolidators but may not be interested in downgrading their acreage, Trauber said. Most upstream buyers only want Tier 1 type acreage, agreed UBS’ Lancaster.

More likely, consolidators would make buys and then divest the bottom portions of their portfolios that no longer compete for capital, perhaps to private equity or upstream MLP buyers, Trauber said. Private equity would likely show interest, agreed Alex Shih, principal of energy and infrastructure, KKR.

Trauber noted that MLP buyers do not have a significant preference for top tier assets, and could buy lower quality production as long as they are cash-flowing, he said.

The A&D market is currently a seller’s market, said Trauber. Citi is running a process for an Anadarko asset divestiture, which could bring in USD 500m, and there were 100 parties signing confidentiality agreements, said Trauber. Half of those were financial sponsors in one form or another, he said. Bids that valued the assets at PV-10 were only in the "middle of the pack", he said.

Onshore there has also been a resurgence in interest by international players, said Trauber and Mayer Brown’s Gray. Chinese companies, which have been absent for years, are starting to become active again. Meanwhile, Gray said Japanese players are looking onshore.

A surprising new class of international investor comes from the Middle East, said Trauber. Numerous Middle Eastern companies are making it known they are out shopping looking for deals in the USD 1bn-USD 2bn range, looking for joint venture opportunities to gain unconventional expertise and knowledge.

The Committee on Foreign Investment in the United States (CFIUS) is a consideration for international players, noted Gray. Trauber said as long as the companies take non-operated stakes, they should not run into CFIUS issues.

UBS' Lancaster noted that Asian investors have a lot of skepticism because many previous deals didn't work out. As they search for deals, they will be closely evaluating the future solvency prospects of their potential partners, Gray said.

The Gulf of Mexico deepwater could see some interesting deals -- though Trauber said it is a "big boy's game". Mayer Brown's Gray noted that the federal government has almost doubled the needed bond requirements for operators there.

Rakesh Wilson, partner, Apollo Management, echoed that sentiment on a separate panel, and said that the private equity firm stays away from the deepwater but likes the shelf. Apollo has already deployed USD 400m through Talos, and plans to continue to invest in the shelf, he said.

Day rates for deepwater drilling rigs in the Gulf have fallen from USD 600,000 per day down to around USD 275,000 per day, which improves economics of operating offshore, said Trauber.

There are "a lot" of sellers but it's not clear if there is an equally long list of buyers in the Gulf, said Trauber. Private equity-backed players such as Cobalt (NYSE:CIE) or Venari might be buyers, he suggested.

One potential seller is Petrobras, said Vidisha Prasad, director, global energy investment banking with Citi. The Brazilian national oil company could begin processes to sell off upstream and midstream assets by the end of the year, which she said could include the Gulf of Mexico, Africa, Brazil and elsewhere. Those assets could potentially interest private equity, Prasad said.

International players, from Japan for example, could be potential buyers in the Gulf, but they are wary of losing face as happened with the Macondo incident, said Mayer Brown's Gray.