Astra Zeneca: growth & R&D expected cuts

kent02's picture
Rank: Senior Monkey | banana points 67

much debate has been going on with astra zeneca proposed takeover from pfizer and tons of commentary have explored the problem from all angles. i still struggle with an aspect though: why pretend to buy astra zeneca's growth (pipeline production) and at the same time plan to reduce R&D spending (combined)?

i mean the acquisition (at least for the initial price) seemed to make sense because:

1) considerable tax benefits that shouldn't be altered in the years (given that pfizer revenue-cost structure shouldn't collpase in the foreseaable future and UK regulators won't change their tax policy)
2) offshroe excess funds will be used to fund a ROE and won't suffer from the haircut they would have taken in the US
3) industry consolidation (although big merger carry big risk for a variety of reasons)
4) complementary resources: pfizer has been known to have excellent distribution and marketing skills that could be transferred to astra zeneca's drugs
5) pfizer's pipeline is poor and its R&D spending quality is mediocre at best while pouring insane amounts of money into it

and while MY knowledge of drug companies is superficial at best, i think that the last point is very important to pfizer and it has been highlighted as such but then there are no guarantees that mr read will give over R&D budget, meaning many jobs will be cut in one country or in another. this is the point i cannot wrap my mind around: if your pipeline can't get good products out there in the market (something crucial for a drug company), why cut the branch on which you're sitting (and for you are paying handsomely)?

are there some sensible reasons i am clearly missing?

p.s.: at the current price i don't think much of the expected synergies will pay much (106bn is a bit too much for me) but mine wants to be more of a student question rather than an outright valuation issue.

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