What does Pfizer's $11B buyback mean for the chances of an AstraZeneca bid?

ISI Group's Mark Schoenebaum says Pfizer's buyback doesn't necessarily mean it won't move forward with pursuit of AstraZeneca

Pfizer's $11 billion share buyback, announced late Thursday, gave investors something to focus on, rather than fretting about whether the company would renew its pursuit of AstraZeneca once the required cooling off period lapses in November. But some of them immediately started worrying about whether the buyback meant it was less likely Pfizer would do a big deal.

Shares of Pfizer ($PFE) rose 1.4% of the announcement while shares of AstraZeneca ($AZN) fell as much as 1.2% early Friday on the news, reflecting the street's consensus. Pfizer gave no hint of what the buyback meant for any plans to pursue a deal, simply saying the $11 billion authorization was in addition to the $1.3 billion buyout already in place and that it would be used over time.

Mark Schoenebaum, however, cautioned his clients against jumping to conclusions about whether the buyback dampened the chance that Pfizer would make a bid for AstraZeneca, Reuters reported. "We cannot and should not necessarily make that read-across," the ISI Group analyst told them in a note.

But as Reuters points out, the buyback is one more in a series of events that may not bode well for a renewed run. Just last month, Bernstein Research analyst Tim Anderson said Pfizer execs were telling him Pfizer needed to do a so-called "tax inversion" deal with a EU company to lower its tax base and so it could get access to an overseas cash hoard that is hard to use because of U.S. tax laws. He said that if Pfizer didn't buy AstraZeneca, it would look at other possibilities. Actavis ($ACT) has been mentioned.

Shortly after Anderson laid out all of those reasons, the U.S. Treasury Department changed up the tax rules to limit the benefits of tax inversion deals and stop the on-paper exodus of U.S. companies and their tax revenues. The changes were enough for AbbVie ($ABBV) this week to quell its $55 billion deal for Ireland's Shire, a move that jittery investors took as further proof that Pfizer would back away from AstraZeneca. Pfizer's Thursday buyback announcement, while boosting Pfizer stock, was seen as yet another indicator.

Still, tax advantages aside, there are reasons for Pfizer to make a substantial deal. Its cost-cutting efforts are running out and it still needs to boost its portfolio so that it can boost its revenues. Pfizer has yet to report Q3 earnings but last quarter was not pretty. Its established products business saw sales drop for the first half of the year, to $12.5 billion from $13.78 billion. That is ahead of generic competition for Celebrex, which is set to hit before the end of the year, instead of next year as Pfizer had been expecting. That led Pfizer to cut its full-year revenue forecast by $500 million, something that will come to mind to investors once the excitment over the buyback fades.

- here's Pfizer's announcement
- read the Reuters story

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