* Less risk to PFE approach at 3 months than initially envisaged — Within a
general M&A context, Linklaters clarified on the call that an acquirer can re-engage
at 3 months with the approval of the target company at or above the previous offer.
Importantly, (i) the acquirer has flexibility to negotiate with the target company as
soon as the 3 months have expired; (ii) there is no legal obligation for either
company to disclose an approach has been made. Consequently, we believe there
is less risk to PFE in making a second approach to AZN at 3 months than we had
previously envisaged. Despite this, we continue to view PFE waiting until the 6
months has expired as the most likely outcome when PFE can make an offer that
does not require target board approval. We continue to believe AZN's intrinsic value
to be in excess of £49 per share (Pipeline Value Still Underappreciated With or
Without PFE. BUY). We prefer BUY rated AZN, Roche and Novo in EU. We prefer
BUY rated BMY and PFE in the US.
* Increased probability of PFE approach in August — We have increased the
probability that we ascribe to PFE making a second approach for AZN from 10% to
25% when the 3 month period expires. We anticipate a 40% probability that PFE reapproaches
AZN in late November on expiry of the 6 month period. We had
previously assumed that PFE would desist from approaching AZN at 3 months
given (i) implied takeover code restrictions on negotiation (ii) the risk that PFE could
appear weak in front of its shareholders. We previously believed that PFE would be
publicly forced to disclose any approach at or beyond 3 months.