* I want a new drug
We believe there is at least a 50% chance that Pfizer returns with a sweetened offer for
AstraZeneca in November, when the take-over panel’s restrictions expire. The manner in which the
two companies approached the possible take-over last time was less than optimal for their
respective shareholders, who were left frustrated by the failure of the parties to engage in
meaningful discussions. However, AZN’s attractiveness for Pfizer is unchanged (and possibly
enhanced by recent pipeline data). We think AZN is unlikely to invite Pfizer to talk before
November and investors will have to wait until then for Pfizer to return with a proposal that gets the
AZN board to engage (around GBP56-58?). But if AZN CEO Soriot's estimates of the sales
potential of the AZN pipeline are to be believed, a higher price should not be an insurmountable
barrier. Meanwhile AZN offers a 3.9% net dividend yield, which should limit downside. November is
only 4 months away, not that long to wait given the potential upside of around 30%.
* Yielding to temptation
The temptation is to take profits in Shire here – with Abbvie’s offer worth just over GBP53 and the
stock trading at GBP49 there is around 8% upside left. Given the noises coming from the US
around a possible interdiction of tax redomiciliation we have decided to take profits. Since Shire’s
entry in 2011 we have made a 195% return on this position.
* Telecoms switch
We are removing Colt from the list and replacing it with Bouygues after the latter’s recent fall. We
have held Colt for three and a half years now. While the valuation remains extremely low the poor
operating characteristics of the business have cost us a 30% underperformance over that period.
The recent earnings disappointment and lack of results from the restructuring make us nervous of
continuing to hold the stock simply on the M&A story. The Bouygues case is well known but the
value creation of synergies and market repair have been partially priced out recently following a
number of non-committal statements from all the players potentially involved. It looks like a good
entry point into a deal that will surely be done one day.