Deal-minded analysts eye Bayer, AZ for M&A

As the FDA's expert advisors debate the future of the Bayer-Johnson & Johnson ($JNJ) bloodthinner Xarelto, market-watchers are playing matchmaker. Bayer's stock went reeling after FDA blasted the data supporting Xarelto's approval, questioning the drug's efficacy and safety. So, analysts figure Bayer is now cheap at the price. And they figure another sizable drugmaker might step up to do a deal.

First on their matchmaking list is Sanofi ($SNY), whose portfolio neatly meshes with Bayer's, J.P. Morgan analysts said in a note to investors (as quoted by Reuters). "We believe the best strategic fit is with Sanofi, Novartis and AstraZeneca," analysts Alexandra Hauber and Richard Vosser said. UniCredit analysts also peg Bayer as a "compelling acquisition target."

Only a few problems with that talk. Sanofi has repeatedly ruled out a deal that size; even at depressed stock prices, Bayer's market cap is €30 billion, or $42 billion. Plus, Sanofi is just beginning to digest Genzyme, which it recently bought for around $20 billion. Likewise, Novartis ($NVS) is working on its eye-care business Alcon, which it bought as a diversification move for a total of $51.6 billion. And Novartis CEO Joe Jimenez (photo) has said he's into bolt-on deals, not big acquisitions.

Then there's AstraZeneca ($AZN), which, coincidentally, featured in a deal-minded analyst's report, too. Royal Bank of Scotland's Michael Leacock says the company may well need to shop for deals to shore up its pipeline if its own R&D efforts don't bear fruit soon. Leacock noted that AZ has $10 billion in cash on hand that it could use on a series of small deals--or one big one. And the sooner the better, he added, saying the company will need revenue help soon. "An early larger-scale acquisition would provide time for any benefits to be extracted before key patents expire," he says (as quoted by the Wall Street Journal).

AstraZeneca, however, says it's keeping the cash on hand to buy back shares; its board doubled its share-repurchase plan to $4 billion in January.

For its part, Bayer CEO Marijn Dekkers recently said merging Bayer's pharma division with another drugmaker would hypothetically be "more elegant" than some pricey acquisition. "I won't speculate on names," Dekkers told Reuters at the time. "I know all CEOs of the major pharma companies and enjoy speaking to all of them about industry topics."

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- see the WSJ Deal Journal post
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