- AstraZeneca shares dropped 6.4% after merger talks with Bristol Myers Squibb surfaced
- A combined company would have a market value near $400 billion and be the 4th largest pharma
- Analysts questioned the strategic need for the merger given AstraZeneca's strong growth
AstraZeneca shares fell sharply on Monday after reports that the company had held merger talks with Bristol Myers Squibb, a deal that would create one of the world's largest pharmaceutical companies with a combined market capitalisation of nearly $400 billion.
The stock was down 6.4% at 0830 GMT, making it the biggest loser on the FTSE 100, as analysts and investors questioned whether Britain's largest drugmaker needed such a transformational acquisition despite the potential financial benefits.
A combination of one of Europe's leading pharmaceutical companies with its US rival would create the world's fourth-largest drugmaker by market capitalisation and the largest by sales.
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Analysts and investors, however, questioned the strategic rationale for such a merger, given AstraZeneca's strong growth track record under longtime CEO Pascal Soriot.
AstraZeneca shareholder Lucy Coutts, investment director at JM Finn, said, "The only advantage for AstraZeneca in this rumoured combination with BMS seems to be to accelerate its U.S. footprint and sales."
She added that AstraZeneca was already achieving that objective at the "right pace and cost" for investors.
"On balance, BMS shareholders would be the winners of any combination with AZN, and so this news will undoubtedly be received coolly by AZN shareholders," she said.
AstraZeneca and Bristol Myers Squibb had held merger talks, a person familiar with the matter told Reuters, confirming an earlier Financial Times report. Based on Friday's market close, AstraZeneca was valued at $264.11 billion and Bristol Myers at $133.41 billion, giving the combined company a market capitalisation of nearly $400 billion.
"A combination with Bristol does not make strategic or financial sense," said Markus Manns, an AstraZeneca shareholder and portfolio manager at Union Investment.
"Many past mega-mergers have destroyed value, and there is no apparent need for Astra to do it," he added.
Lukas Leu, portfolio manager at ATG Healthcare, said a merger could improve margins through cost synergies and expand the company's presence in neurology and cell therapy, but questioned how a combined company would position competing medicines.
"I am not a big fan of mega-mergers; it kills innovation and agility, and would be growth-dilutive for AstraZeneca in the near term," he said.
Analysts said AstraZeneca could be attracted by Bristol Myers' strong presence in the US, its largest market and the world's biggest pharmaceutical market.
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The US accounts for the majority of Bristol Myers' revenue, giving the combined company one of the industry's largest commercial footprints.
AstraZeneca has committed tens of billions of dollars to US manufacturing investments since President Donald Trump took office and has built strong ties with the administration as it works towards its target of generating half of its planned $80 billion in annual revenue from the US market by 2030.
AstraZeneca generated nearly $59 billion in revenue last year.
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