Investors Should Be Careful Around AstraZeneca plc

When Pfizer revealed that it was willing to pay upto $106bn for UK biotechnology giant AstraZeneca plc, (LSE: AZN) (NYSE: AZN.US) shareholders celebrated, but it seems as if the celebrations started too soon.

The deal between the two biotech giants has now attracted a storm of controversy and the deal has become worrying political.

Politics isn’t good for business 

As the government wades in on the deal between Astra and Pfizer, investors should be careful, it’s well known that politics and business do not mix.

What’s more, if the government blocks the deal between the two companies then Astra’s shares have a long way to fall before they return to their pre-bid level.

Still, Pfizer has promised that if the government allows the merger to go through it will complete a research center that Astra is already planning to build in Cambridge, retain a big factory in the northwest of English and put a fifth of its research staff in Britain.

But that fact remains that while Astra is technically a British company, the biotech giant does most of its research and development overseas, making the government’s demands and intervention seem excessive, to say the least. 

Most business is done overseas

Astra employs 51,500 people worldwide, although only 6,700 of them are based in Britain. Additionally, the company’s planned move to its new state-of-the-art site in Cambridge, which Pfizer has promised to complete if the deal goes ahead, will lead to hundreds of job losses anyway.  

That’s not to mention the fact that many of the drugs Astra currently has underdevelopment come from the Maryland-based biotech business MedImmune, which Astra acquired for $15.6 billion during 2007.

So, many of the demands the government is placing on Pfizer are more than can be expected, and this is reflected in investor sentiment. Indeed, Astra’s current share price, which stands below the £50 per share bid price, reflects that fact that the market does not believe the deal will go ahead.  

A long way to go

If the deal doesn’t go ahead investors could be in line for a shock, as it’s likely that Astra’s share price will return to pre-bid levels — that’s around 10% below the current price.

And it’s also likely that investors will shun Astra for some time to come, as the firm’s sales are expected to fall until 2017. However, after that, “strong and consistent growth” is expected.

Foolish summary

Overall, it seems as if now that the government has got involved with the Pfizer-Astra deal things are going to get complicated.

Based on the fact that Astra’s share price currently sits below the price Pfizer is offering, it would appear that the market does not believe the deal will go ahead. 

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Rupert does not own any share mentioned within this article.