James Moore: Deals look better for the prey than the predator

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The Independent Online

Outlook AstraZeneca and Yahoo could be corporate twins. They operate in very different sectors but the problems facing both are remarkably similar, and so are the drugs their respective chief executives have settled upon to treat what ails them.

Both are big, wealthy, cash rich, businesses facing flat or declining revenues while struggling to find replacements for products which are losing either patent protection, or relevance, or both.

Both are now hoping that they can buy their way out of their difficulties. That means paying vastly over the odds for companies which have potential but not much beyond that.

Yahoo's recent acquisition of Tumblr, the blogging site which has a popular product but which doesn't make much out of it, is very much in that category.

Meanwhile Astra, which has been doing much the same thing with a string of biotechnology acquisitions, added to its number yesterday with Omthera Pharmaceuticals, whose speciality is fish oil-derived heart medicines.

Its lead drug has at least completed the final stage of its trials, although it still has to secure final US regulatory approvals, but this is hardly new news.

Even after the announcement of the successful trials, the market valued the company at significantly less than Astra paid for it. The purchase price represents an 88 per cent premium to Omthera's Friday close on the Nasdaq.

It's true that heart drugs are a speciality of AstraZeneca and Omthera's product could be combined with the former's cholesterol treatment Crestor. But, as with Yahoo it's very much could, might, if, maybe. And even if the products of their new playthings are winners, both these giants have to prove they can successfully exploit them. Big companies that buy smaller companies, even in industries that put a premium on innovation like the internet or pharmaceuticals, sometimes struggle to do that.

Their shareholders have to hope that their respective spending binges yield a winner or two, because so far the deals they've done look much better for the prey than the predator – prey that could easily be selling snake oil, rather than fish oil, when it comes to making a return for the predator's shareholders.