The speculation is building this week that Pfizer will either attempt another megadeal with GlaxoSmithKline or another run on AstraZeneca. Either would cut Pfizer’s tax rate and give it some products to salve its various ills, lackluster stock price and poor performing portfolio. But the new thinking, like in the last 24 hours, is that smaller deals, perhaps a buyout of Shire or even Perrigo, or both, are better bets.
Jefferies Group analyst Jeffrey Holford, likes that scenario. Bloomberg reports that in a note to investors, Holford mentioned both Shire and Perrigo as potentially attractive to the pharma giant. Both have Ireland corporate addresses, meaning Pfizer, through an inversion, could cut its tax costs. Both have portfolios that could be of interest to Pfizer as it looks for deals that could bolster different pieces of its business in preparation for the big breakup that many investors are hoping for.
“We believe that other significant acquisitions are possible,” Holford wrote Thursday in a note to investors. As Holford sees it, Pfizer can mine “a rich seam of corporate optionality.”
Of course, Perrigo, whose business is weighted toward over-the-counter products, is already being hotly pursued by Mylan, which in turn is facing a takeover attempt by generics giant Teva. Mylan’s executive chairman has suggested Pfizer could just buy it after it swallows Perrigo.
Perrigo has rejected three offers from Mylan although its CEO Joseph Papa indicated this week it would be more amiable if the price is right. Of course, that kind of talk could also be a signal that he is looking for someone else, perhaps someone with deeper pockets to join the bidding. Could that someone be Pfizer?
Pfizer CEO Ian Read has not shown his cards in this, only offering tidbits that suggest his thinking. Even though the U.S. Treasury has made some tax changes that discourage the kinds of tax inversions any of these deals present, Read has said he doesn’t see those as keeping that kind of deal from happening.
A run at GSK could potentially come with the same kind of British backlash that defeated Pfizer in its $100 billion-plus deal for AstraZeneca. Still, Deutsche Bank made a case this week for the effort. They see it providing not only tax benefits to lower costs, but a punch to Pfizer’s earnings, along with the kind of short-term kick that can flow from finally achieving a big M&A deal. And as Deutsche Bank’s Gregg Gilbert see its, the clock is ticking for Pfizer. Bloomberg reported that in a note, the analyst told investors he thinks Pfizer is feeling “a sense of urgency” to use its substantial balance sheet “to do needle-moving deals.”
By Eric Palmer
