Mega drug deals light up markets

Michael Bow
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DRUG deals sparked a global stock market rally yesterday after pharmaceutical firms unveiled almost $70bn of tie-ups and takeovers, sending investors rushing to buy shares in anticipation of more deals in the pipeline.

GlaxoSmithKline (GSK) unveiled the biggest British asset sale so far this year after agreeing to offload a division to Swiss drugs firm Novartis for $16bn (£9.5bn), while also buying a Novartis unit for $7.1bn.

Canadian company Valeant Pharmaceuticals also launched a $47bn bid to buy botox maker Allergan in the US, cementing a renewed interest in pharma deals.

The flurry of activity came on the first working day after it emerged that US drug giant Pfizer had approached FTSE 100 listed AstraZeneca about a $100bn takeover, the biggest potential purchase of a UK company in history.

London-listed pharmaceutical shares rose across the board, helping push the UK’s top share index to within touching distance of its year-long high. GSK rose 5.2 per cent and AstraZeneca was up 4.7 per cent, while the biggest riser on the FTSE 100 was UK peer Shire, up 7.6 per cent.

“It could well be a sign of these exuberant times that executives can now get the financing and investor support again to do these kinds of mega deals,” said Jasper Lawler, analyst at CMC Markets UK.

GSK’s deal will see it pocket up to $16bn by selling a host of its cancer drugs to Novartis while also spending $7.1bn to buy the company’s vaccines business. The two will also enter into a joint venture vehicle containing both firms’ consumer drugs, which will be 63.5 per cent owned by GSK.

GSK boss Sir Andrew Witty said: “We also expect to return £4bn to shareholders following completion of this transaction, whilst maintaining a strong capital base and our commitment to increasing dividends.”

Meanwhile, Toronto-listed Valeant Pharmaceuticals joined forces with Bill Ackman’s Pershing Square Capital Management to launch a bid for US-listed Allergan.

The bid caused the botox company’s shares to spike over 15 per cent in trading in New York yesterday, while Valeant rose 7.5 per cent as investors reacted positively to the deal.

The Pfizer approach for AstraZeneca, revealed in a Sunday Times report, sparked a deluge of number crunching by financial analysts over the benefits of the deal.

AstraZeneca failed to respond to the story yesterday despite the jump in its share price.

The current spate of acquisitions is set to redraw the map for the drugs industry and comes in the wake of a series of smaller deals in the sector.

The biggest takeover so far this year was the $25bn acquisition of Forest Laboratories by Actavis in the US, making it the fourth biggest M&A deal across all sectors globally this year, according to Dealogic.

Deals to take over UK pharmaceutical companies have historically been small in comparison. The biggest purchase of a UK-based pharma firm was the $2.9bn takeover of Warner Chilcott by Waren in 2004, according to Thomson Reuters.

The biggest UK pharma tie-up on record was the Glaxo takeover of SmithKline for $78bn in 2000.

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