Rebuffed AstraZeneca suitor ‘likely to return’

http://www.theguardian.com/business/2014/sep/26/astrazeneca-pfizer-return-takeover-bid

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The star fund manager who supported AstraZeneca’s rejection of Pfizer’s takeover approach says he expects the US pharmaceutical company to make a new offer for its UK rival.

Neil Woodford said Pfizer’s failed £69bn bid to buy AstraZeneca had undervalued the company’s prospects. AstraZeneca’s rebuff angered some of its big shareholders, who accused it of using the political furore surrounding the attempted takeover to stop them cashing in at a hefty premium.

Woodford told the BBC’s Today programme: “My view was that the price that was on the table from Pfizer for AstraZeneca shares was attractive in the short term,but my faith in the AstraZeneca business, and its pipeline [of new drugs], led me to believe there was far more value in AstraZeneca as an independent entity, but you needed to have a long-term view to grasp that.”

Pfizer withdrew its approach at the end of May but under takeover rules it can return with a further unsolicited offer next month. Asked if he thought Pfizer would try again, Woodford said: “I hope that they don’t, but I suspect that they will.”

AstraZeneca shares have fallen this week after the Obama administration announced measures to thwart US firms buying companies overseas to pay less tax. This so-called tax inversion played a major part in Pfizer’s Astra approach, but the US company also said it wanted to cut costs and get hold of AstraZeneca’s drugs in development.

Woodford said pharmaceutical companies were undervalued. He was also gloomy about the supermarket sector after a week of grim news from Tesco, including a £250m overstatement of expected first-half profits. “I used to be a Tesco shareholder some years ago. I exited the position because I was concerned about some of the things that are playing out now. Clearly I didn’t anticipate the sort of problem we have just heard about this week.

“The industry, in the near term, faces a long road to exit this period of depressed margins and crushed profitability, and maybe asset bases [and] balance sheets need to be rebalanced in time before the industry can re-emerge as an investable proposition. The immediate future is going to be tough for the sector but particularly for Tesco.”

As the energy regulator criticised “industry-wide failure” over the handling of customer complaints, Woodford said a potential price freeze was unwarranted. “They are not ripping off their customers, but I’m equally very well aware that they are not doing a very good job of communicating that, or indeed of looking after their customers.”

He rejected Ed Miliband’s proposed windfall tax on tobacco companies to fund the NHS. The idea is “bad economics” because the industry pays £12bn in taxes compared with the £2bn cost to the NHS of treating smoking-related diseases, he said.

In April, Woodford quit Invesco Perpetual, where he ran Britain’s biggest investment fund, to run his own fund, Woodford Investment Management.

He told Today that City fund managers often overcharged customers, especially when they “follow the herd” and look for short-term gains instead of seeking long-term value. “It’s quite clear, in the banking industry and my own industry, that too often the industry has been charging active fees for index performance or worse. Retail clients, in particular, are waking up to the high charges that we’ve seen in the industry, and I think, with some support from the regulator, we’re going to see those charges come down.”