Two drug titans -- considering a massive merger -- are shaking up the stock market.
Shares in Anglo-Swedish drugmaker AstraZeneca jumped 12.2% to close at $77.01 a share Monday after U.S. pharmaceutical firm Pfizer said it offered to buy the company for around $100 billion. Pfizer shares rose 4.2% to $32.04.
The deal is gigantic. Pfizer's bid for AstraZeneca would represent the biggest-ever foreign takeover of a British business.
It's not the first time these two pharmaceutical giants have crossed paths. Pfizer, the maker of Viagra, said that AstraZeneca rejected an initial approach in January valuing the company at about 59 billion pounds ($100 billion). The cash and shares deal would represent a 30 percent premium on AstraZeneca's closing share price of 35.26 pounds on Jan. 3, the closing price around the time the offer was made.
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AstraZeneca PLC said it concluded that the proposal "very significantly undervalued AstraZeneca and its prospects."
Shares traded Monday at 46.77 pounds after the approach was revealed.
Pfizer remains interested and is confident a combination is possible, issuing a statement to the markets underscoring the potential advantages of the deal.
"We believe patients all over the globe would benefit from our share commitment to R&D, which is critical to the future success of the pharmaceutical industry, in the form of potential new therapies that help to fight some of the world's most feared diseases, such as cancer," Pfizer said, in a statement.
Pfizer said the two companies would combine under a new U.K holding company, with management both in the U.S. and the United Kingdom. The company would maintain it headquarters in New York and list its shares on the New York stock exchange.
Timing is everything. Lower interest rates have been a catalyst for a series of recent mergers and acquisitions with the pharmaceutical industry. Last week, for example, Swiss drugmaker Novartis AG agreed to swap its vaccine business for GlaxoSmithKline PLC's cancer drug unit and sold its veterinary drug arm to Eli Lilly and Co.
One big driver for cutting costs: the growing competition from generic drug makers, who continuously undercut the costs of the pharmaceutical giants. Because of this, big drug makers are being hit by revenue declines and seeking ways to cut costs or bolster revenue -- such as mergers.
AstraZeneca is currently undergoing a major research and development re-organization to offset the expiration on patents for drugs like cholesterol medication, Crestor. The company has been reducing costs and trying to make research programs more productive.
Contributing: Associated Press.