Is AstraZeneca the hen or the pig?

 

Many mergers and acquisitions are like a hen approaching a pig and saying that it would be a good idea for the two of them to go into business selling bacon and eggs. The catch … as you can probably see is that the pig needs to sacrifice itself for the combination to work ….

Added on 08 May 2014 by Andrew Campbell

Many mergers and acquisitions are like a hen approaching a pig and saying that it would be a good idea for the two of them to go into business selling bacon and eggs. The catch … as you can probably see is that the pig needs to sacrifice itself for the combination to work …. but the hen does not. Is this what is happening in the AstraZeneca situation? Is AstraZeneca the hen or the pig? On the surface AstraZeneca feels more like the hen. Astra has the golden eggs – its research and new drugs about to come onto the market. Pfizer feels more like the pig: the large corporate that has been eating other large corporates. So maybe Astra should be buying Pfizer not the other way around. Corporate synergies and hen and pig issues are the subject of my new book “Strategy for the Corporate Level” Jossey Bass May 2014. One of my concerns with the current deal is that Astra appears to be resisting the deal with the wrong logic. The leaders are busy arguing that the company is about to do extraordinarily well on its own that is has great products and that as a result Pfizer is probably paying too little. Yes price is a factor. But when the bidder is paying nearly a 50% premium to what the market thought Astra was worth before the bid it is hard to argue that the price being offered is too low. Why weren’t Astra executives making this argument before the bid? Are Astra suggesting that the market is consistently undervaluing pharmaceutical companies? If so why? If Astra executives really want to resist they should be arguing against the bid using on one of four logics 1. There are no synergies so the premium that Pfizer is paying makes no sense. This is really an argument to Pfizer’s shareholders rather than to Astra’s shareholders. 2. Even if there are synergies Pfizer managers will be less good at exploiting the potential because Astra is a bit different. Pfizer will apply its normal processes to Astra resulting in few synergies and less good exploitation of Astra’s potential – the mismanagement argument. Pfizer according to Anthony Hilton in the Evening Standard has made $200 billion of acquisitions without significantly increasing its corporate value (implication being that it has chucked $200 billion out of the window and that Pfizer is better at creating dis-synergies than synergies). 3. There are synergies but Pfizer managers are just not as good as Astra managers and hence Astra should be buying Pfizer rather than the other way around (In fact it might be interesting for Astra to make a counter bid!). This is arguing that Astra is the hen. 4. There are synergies but Astra is the pig that will be killed to achieve the new bacon-and-egg business model. This will be bad for Britain and hence the government should step in to stop the deal. What we need to hear from the Astra team is whether there is a bacon-and-egg opportunity and who is the pig.