Drug giants are finding that big deals are not a wonder cure for their shares

My Week

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The Independent Online

A year ago on Tuesday, AstraZeneca rejected Pfizer’s final £69bn bid, bringing an end to the most absorbing takeover battle of the decade. The jousting drugmakers drew shareholders, scientists and politicians into their fight, as a Frenchman who calls Australia home defended one of Britain’s biggest companies against a Scot at the helm of an American multinational with a reputation for slash-and-burn management techniques. After AstraZeneca’s shares plunged, the deal’s denouement was the talk of the Chelsea Flower Show reception that night.

Pfizer could have struck back with another bid, but AstraZeneca has made a decent fist of moving on. Sure, its sales targets have been set out so far in the distance that it will fall to chief executive Pascal Soriot’s successor to disown them if the company doesn’t look like it is going to get there. But it has shown more immediate progress with a slew of treatments including the blood-thinning drug Brilinta.

The company’s shares have had a decent run until recently, but have never troubled the £55 per share that Pfizer said it was minded to pay. That’s fine, because pharma is a long-term game and Pfizer was offering heaps of jam today for  a company with a mixed record in serving up the promised jam tomorrow. What is interesting is that while AstraZeneca dodged a deal, its blue-chip rival GlaxoSmithKline pulled one off at just the same time: its complicated £11bn asset swap with Novartis created a consumer healthcare giant.

Another move, to spin out its HIV division into a separate FTSE 100 company, was canned the other week because investors preferred to reap the benefit themselves.

The jury is out on both reinventions. GSK, in particular, has shown little share-price progress despite a phenomenal amount going on under the bonnet. Sir Andrew Witty, the chief executive, broke cover this week, questioning some of this year’s highly priced drugs deals and spelling out that the future is about lower-priced goods such as flu jabs and not the expensive cancer medicines he has jettisoned.

It is a model that reminds me of an encounter few years back with Google’s Larry Page, who liked to compare his business to making toothbrushes. If Google’s next innovation is something simple and everyday from which it can take a small cut but sell in great numbers, all the better. If only the drugmakers, in search of a wonder cure for their stock market ills, could make it look so easy.

Will Centrica beat the regulator to a break-up? 

 Has Centrica had a lucky escape gaining Amber Rudd as Energy Secretary instead of Caroline Flint? Of course, there is unlikely to be a freeze on energy prices now, but the British Gas owner still has to contend with the results of a Competition and Markets Authority investigation that could, at its most severe, order an industry break-up.

The City is starting to believe that the new Centrica boss Iain Conn might get to the same answer ahead of those leading the inquiry. Analysts at the investment bank Jefferies forecast this week that Centrica would end up divesting much of the upstream activity built up under Mr Conn’s predecessor, Sam Laidlaw, and could even spin off its American retail division. That would leave it with ample cashflow to beef up the dividend and put management focus on its British Gas customers. Such a move doesn’t in itself mean a better, more transparent deal, which was the aim of the inquiry. Actually, it hints at Centrica going back to the future, and exploring what services it might cross-sell to a captive audience. Goldfish credit card anyone?

Sex and the City: a float to lead us into temptation

I had chapter and verse on the phone the other day from Noel Biderman about why buying shares in his business might not be such a bad thing after all. The Canadian founder of Ashley Madison, the infidelity website that matches bored, like-minded individuals for a fling, is heading to London soon to see if investors are keen.

After judging that Wall Street is just too buttoned-up a place for an Ashley Madison flotation, Mr Biderman thinks the Square Mile is more relaxed, taking his lead from all the nudity in British newspapers. But the City isn’t sure: moral outrage and the money-making imperative are battling it out in brokers’ and fund managers’ minds.

Filthy lucre is nothing new. EasyDate, which renamed itself Cupid, raised £10m when it floated in 2010. It ran a collection of dating websites including BeNaughty, CheekyLovers and WildBuddies. City investors missed out on the chance to invest in something more risqué in 2007, when the Express owner Richard Desmond pulled the planned flotation of Portland TV, his late-night subscription service with channels such as Television X, the Fantasy Channel and Red Hot.

Mr Biderman raises eyebrows when he says that with 1.2 million UK members, Ashley Madison is a “communications platform” and not a “sex business”, and cashes in on infidelity no more than hotels and restaurants.

By floating in London, he draws comparison with the offshore internet gambling firms that flooded the market a decade ago. It was not the City’s finest hour, particularly when US President George Bush signed legislation to ban the activity. But don’t let that put bankers off. I think the City will fall for Ashley Madison’s charms hook, line and sinker.

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