Bulk up or slim down? Maybe both: Pfizer said to weigh a $100B deal for AstraZeneca

Pfizer CEO Ian Read

We thought Pfizer was on a diet. After all, CEO Ian Read has garnered investor acclaim for his unit sales and spinoffs, and more of that action is expected. But the U.S.-based drug behemoth reportedly made a $100 billion-plus merger pitch to its struggling rival AstraZeneca. That would be quite a deal to digest.

AstraZeneca ($AZN) turned Pfizer away, sources are saying, but the now-dormant deal talks could revive, analysts figure. Buying AZ would add a full range of diabetes treatments to Pfizer's ($PFE) portfolio, and some cancer prospects--namely hot immunotherapy prospects--to its pipeline. Plus, Pfizer could squeeze billions in costs out of the combined company.

"We anticipate Pfizer to push aggressively ahead with a second approach," Citi analyst Andrew Baum wrote in an investor note (as quoted by Reuters).

Pfizer is a megamerger veteran with a series of big buyouts to its credit, including Pharmacia, Warner Lambert and, most recently, Wyeth. That $69 billion deal was one of several pharma megamergers in 2009.

Big Pharma has made some large deals since then--Sanofi's ($SNY) Genzyme buyout, for instance--but nothing like a megamerger. Critics of deals that size say integrating two huge drugmakers causes more problems than it solves, particularly when it comes to R&D productivity.

From a shareholder value perspective, McKinsey & Co. found in a study earlier this year that pharma megamergers have actually paid off. The consulting firm crunched the numbers to find that many of the big deals of recent years delivered returns to shareholders.

How would an AstraZeneca buyout square with Pfizer's slim-down focus? The British drugmaker would add to the pharma operations Pfizer wants to keep and grow. That would leave Pfizer with a bigger--but more tightly focused--pharma core if the company decides to hive off lesser operations like consumer health or off-patent products.

But it's worth noting that, among the mergers McKinsey tagged as not-so-successful was Pfizer's Wyeth buyout. Could the company manage another megamerger more profitably? We may get an opportunity to find out. We'll certainly hear a lot of questions about the potential deal tomorrow, when AstraZeneca unveils its first-quarter earnings.

- see the Reuters news

Special Report: Top 10 pharma companies by 2013 revenue - Pfizer - AstraZeneca