Is AstraZeneca eyeing up Shire for a buy?

Market rumors sent UK drugmaker Shire's share price 4.2% higher to 1,052.50 pence on November 16, as rumors circulated that it may be the target of an acquisition by pharmaceutical major AstraZeneca. However, both firms declined to comment, saying they do not do so on speculation. AstraZeneca is under pressure to boost its R&D pipeline, given several recent delays and failures (Marketletters passim).

However, reacting to press reports about a potential deal, Citigroup said such a deal would make sense. The bank noted that Shire's attention-deficit hyperactivity disorder business could fit well with the drug major's central nervous system operations. It also noted that that the two chief executives, David Brennan and Matthew Emmens know each other well and that AstraZeneca "could pay up to 1,370 pence/share and derive earnings per share accretion of 7% in 2010."

Shire, which has a strong portfolio of products, has a market capitalization of just over $9.0 billion and, as of September 30, AstraZeneca had cash reserves of $5.8 billion, meaning that such a buy would be well within its capabilities.