AstraZeneca’s big deal booed by the market, and Codemasters receives higher takeover bid

“Sterling has rallied 1.2% to $1.3390 versus the US dollar as markets showed some relief that EU trade talks haven’t collapsed,’ says Russ Mould, Investment Director at AJ Bell.

“The fact that negotiations have been extended to the end of the year gave investors hope that a deal could still be reached. The FTSE 250 jumped 1.2% to 19,852 while the FTSE 100 advanced by 0.3% to 6,564 with housebuilders, banks and retailers all rallying across both indices.

“This is encouraging, but one must also remember that only a few days ago the market was starting to lose hope of a deal. Stocks jumped on Monday because there is more time for negotiations, not because feedback from either side has been particularly positive. Therefore, today’s stock rally could easily prove to be a false dawn.

“Elsewhere, Royal Mail fell 1.1% amid growing backlash over severe delivery delays. It seems to be struggling under the weight of demand for online shopping and people sending gifts to friends and family who this year they may not get to see in person.”

Astrazeneca

“You would think AstraZeneca could do without any distractions as it looks to address some of the scepticism which has built up around the covid vaccine developed in partnership with Oxford University.

“Perhaps that’s why the market has taken exception to its $39 billion cash and shares bid for US biotech Alexon, with the company also taking on lots of debt to fund the deal.

“Alexon has failed to attract a suitor for some time, despite shareholder pressure, so investors might see AstraZeneca as a bit of a sap for pitching up with a 45% premium. It is also an immunology-focused business which will stick out like a sore thumb against the rest of AstraZeneca’s portfolio.

“Having fended off a hostile bid from Pfizer in 2014 perhaps there is an element of buttressing itself against any other potential predators.

“There are other attractions to the deal for AstraZeneca, such as the fact that Alexon generates strong cash flow and will provide a tangible boost to revenue and earnings. Management believe they can boost sales by selling Alexon’s drugs in new markets.

“Alexon also has expertise in rare diseases, adding to AstraZeneca’s range of capabilities, and its technology can be applied outside of its rare disease focus, though this a prospective long-term benefit which will take time to accrue.”

Codemasters

“Gamers have a habit of being able to navigate through difficult levels and they fight to reach higher ground, but investors often don’t have the same patience and perseverance.

“Codemasters’ takeover offer from Take-Two always looked a bit stingy but its shareholders seemed to be losing all hope of someone else coming along with a better offer. Many of them will have already exited, preferring to lock in a small gain all in cash rather than wait for a mixture of cash and shares in an overseas-listed business.

“Yet investors who stayed the course have now been given an extra life after Electronic Arts entered the fray with a better offer. This is a good result and an all-cash deal, but it’s not the same joyous feeling as finding a Playstation 5 in stock as many people still believe Codemasters is worth a lot more than is being offered.

“Gaming has been one of the industries seeing accelerated take-up during the pandemic and there are quite a few high-quality players on the UK stock market. In one way, it would be a shame to see Codemasters delist as it would mean the London Stock Exchange is deprived of yet another quality software business.

“The broader tech space is woefully under-represented among larger UK stocks which means the UK is lagging other markets globally. However, the fact that Codemasters is the latest in a string of tech-related businesses to be taken over does show that the UK is still a good hunting ground for smaller tech firms, which means the market still has something to offer in this space.”

These articles are for information purposes only and are not a personal recommendation or advice.