Zeneca investors query Astra deal

ZENECA is due this week to publish the formal offer document outlining its proposed $35bn (pounds 21.4bn) merger with Swedish pharmaceutical rival Astra, as debate intensifies as to whether the deal will benefit Zeneca shareholders.

The company argues the fit between it and Astra is excellent, and that as the third largest pharmaceutical concern in the world - after Merck and Glaxo - AstraZeneca would be well placed to compete in its consolidating sector.

"We believe the deal will deliver value for all our shareholders," said Tom McKillop, the chief executive designate of AstraZeneca. "The more we explain the merger to shareholders, the more they like it."

But sceptical analysts and fund managers say they are disappointed that the proposed merger of equals will generate no takeover bonus for Zeneca shareholders. They also worry that the expiry of US patents on each of the two firms' biggest selling drugs in 2001 casts doubt on claims by management that sales and profits are set to rise.

"The deal will be criticised, and it should be," said Jonas Morner, a pharmaceutical analyst at Deutsche Securities.

Liz Thom, at Edinburgh Fund Managers, a holder of Zeneca shares, added: "I accept the logic of what Zeneca is saying. But it's not the merger I'd like to see, because the loss of Astra's US patent on Losec poses big questions."

Once the formal offer document is published, Astra shareholders will have 20 working days to exchange each of their shares for a little more than half an AstraZeneca share. The merger proposal calls for a 90 per cent acceptance rate but in the small print says this number can be waived at management's discretion.

Zeneca shareholders must vote on the deal at an extraordinary general meeting tentatively scheduled for early next month. Seventy-five per cent must approve the merger for the deal to go through.

Ms Thom, and other fund managers speaking off the record, say they will wait until they see the offer document to make up their minds.

Even if the managements of Zeneca and Astra do not allay shareholder concerns, however, they can expect the deal to be approved at Zeneca's EGM, according to analysts.

"If Zeneca shareholders vote down the deal, they will be saying 'we want the company to be bought,'" said Deutsche's Mr Morner. "That's not a good situation, especially as Zeneca faces patent expiries."

Instead, the City has been hoping that the announcement of the merger might shake out a takeover bid for Zeneca, resulting in an offer of over pounds 30 a share, against the high twenties in which the share traded last week. But hopes for such a bid have faded as neither Roche nor Glaxo have made any move.

"There's a great deal of intellectual capital built into Zeneca in the form of goodwill," noted one analyst.