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Why FTSE 100 firm AstraZeneca’s shares fell and Codemasters’ stock soared 20% today

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The FTSE 100 index opened, very slightly up this morning on news that Brexit negotiations will continue. This bolstered the pound, but concerns of disruption to supply chains and restrictions on UK citizens working in Europe remain. Meanwhile, in the US, hopes for a stimulus bill continue to be discussed, but nothing is yet confirmed and is still suppressing share prices.

AstraZeneca share price falls

FTSE 100 pharma giant AstraZeneca (LSE:AZN) is buying US drugmaker Alexion Pharmaceuticals in a surprise diversification away from its cancer portfolio to take a stake in rare-disease and immunology drugs. In a deal reportedly worth £29bn ($39bn), this is its largest ever transaction.

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CEO Pascal Soriot has driven a turnaround in the company’s fortunes in recent years. He fought off a bid from Pfizer to buy out AstraZeneca back in 2014 and has worked hard to develop a ground-breaking set of cancer drugs.

The AstraZeneca share price has therefore steadily risen over the past two years. It was also encouraged this year by its involvement in creating a Covid-19 vaccine in collaboration with Oxford University. This has been largely successful. It’s coming in cheaper and more logistically viable than Pfizer’s offering, but still must get through some final testing hurdles.

In light of its buoyant share price, the CEO wants to add value by increasing market share. This is the reason for the mega purchase of Alexion. Nevertheless, some shareholders don’t see the value and that’s why the FTSE 100 company’s share price fell almost 7% at the opening bell.

The CEO believes this acquisition will increase earnings per share, which in turn will help to justify its massive price-to-earnings ratio (P/E) of 99. AstraZeneca offers shareholders a 2.7% dividend yield.

Codemasters to be bought by Electronic Arts

Meanwhile, shares in AIM-listed Codemasters Group Holdings (LSE:CDM) jumped over 20% this morning. This was on the back of weekend news that Electronic Arts wants to buy it. NASDAQ-listed Electronic Arts has a market cap of £30bn ($40bn) and P/E of 30. The massive US computer games company has agreed to buy Codemasters for £945m ($1.2bn).

This was after outbidding rival US company Take-Two Interactive Software. The maker of Grand Theft Auto had offered £759m ($1bn) in a cash-and-stock deal. The Codemasters share price is up 82% since Take Two first made its bid in September.

Codemasters’ ongoing success largely comes from the popularity of its racing simulator games, including Formula One, Project Cars and Dirt. Leading video games publisher Electronic Arts, on the other hand, makes Fifa, Apex Legends, Battlefield, Need for Speed, Star Wars and many more.

The Codemasters share price has now risen 129% year-to-date. It’s also up 222% since the 30-year-old company publicly listed in 2018. Tech and gaming companies are particularly popular at the moment and have done very well in 2020. This is spurring the drive for big gaming companies to snap up promising smaller entities. Investing in tech and health companies remains popular among retail investors despite skyrocketing valuations and concerns of a bubble in the tech sector.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Take-Two Interactive. The Motley Fool UK has recommended Electronic Arts. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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