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AZ share buyback suspension prompts M&A speculation

Analysts query new CEO Pascal Soriot’s intention to preserve cash reserves

AstraZeneca AZ headquarters London UK

AstraZeneca (AZ) has suspended a share repurchase programme launched earlier this year after achieving around 50 per cent of its target, prompting speculation that it may be mulling a major acquisition.

Noting yesterday that the buyback had been suspended "with immediate effect", AZ's new chief executive Pascal Soriot said the move was a "prudent step that maintains flexibility".

The pharma company said it has completed around $2.3bn of its planned $4.5bn in net share repurchases over the course of 2012, and the shortfall has been interpreted in some quarters to mean that AZ wants to preserve cash reserves for acquisitions.

Analysts at Merrill Lynch said that the suspension was not a surprise but came sooner than expected and "is clearly designed to give flexibility for bolt-on acquisitions", while Barclays analyst Brian Bourdot told Bloomberg that he believed a large deal could be in the offing.

Speculation is currently centring on a possible bid for Forest Laboratories, perpetuating a rumour that has been circulating for several months.

Soriot, who took over the top job at AZ yesterday after the abrupt departure of former incumbent David Brennan in June, was formerly chief operating officer of Roche's pharmaceuticals division and, like any incoming CEO, will be keen to make his mark early.

Brennan was widely criticised for not doing enough to steady the ship at AZ in the wake of a series of late-stage pipeline disappointments which threaten to undermine the company's ability to weather the loss of patents on blockbuster brands such as schizophrenia treatment Seroquel (quetiapine) and gastric ulcer drug Nexium (esomeprazole).

In particular, Brennan was under fire in some quarters for sticking largely to a go-it-alone strategy when many of AZ's peers were forming large-scale M&A deals (with the obvious exception of the $15.6bn purchase of Medimmune in 2007). Meanwhile, the culture at Roche has been very different with a string of major deals in recent years including the takeover of Genentech.

AZ is currently undergoing its annual strategy review, and has said it plans to announce the results in January, when it reports 2012 earnings.

2nd October 2012

From: Sales

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