Zeneca: Prey Or Predator? Analysts Review Company

UK drugmaker Zeneca has been the object of bid speculation for quite some while, but could the tables be turning? Analysts Percy Lomax and Robert Sutherland Smith at Teather & Greenwood observe that Zeneca has an unfettered balance sheet and a strong position in cancer therapy, with major new drugs coming through the R&D pipeline (Marketletters December 18 & 25, 1995 and January 1 & 8, 1996).

Thus, they say, Zeneca could itself be a predator. But they conclude that since it did not move for Fisons, a company they believe would have been an ideal fit, Zeneca is more likely to be prey than predator. The analysts also note that Zeneca occupies an unusual position; it is of a size in the drug industry that has proved popular in the past for predators, being roughly comparable in industry rank with Wellcome, Syntex, Marion Merrell Dow, Squibb and Rorer.

Turning to the cost of acquiring Zeneca, Messrs Lomax and Sutherland Smith suggest that a price between L13.5 billion and L15 billion ($20.3-$22.6 billion) would be necessary to acquire the company; this would imply a share price of between L14.28 and L15.87 (last week it was trading at L12.61). While this might appear to be a large sum, it is well within the reach of the giants of the pharmaceutical sector, they say, and it should also be possible to sell the group's agrochemicals and specialty chemicals businesses for around L5 billion, so reducing the purchase cost to L10 million or less.