Market commentary: Pfizer and Allergan attempt merger, Starbucks delivers positive growth

European equity markets opened higher this morning, after trading lower on Thursday, while US stocks witnessed a rather choppy session, closing flat as investors digested the latest FED meeting press statement and corporate earnings. Asian markets closed mixed this morning, with Japanese stocks ending the week in positive territory, while both Chinese and Australian equities closed lower for the day.

As the earnings season continues, markets were taken by surprised yesterday when Pfizer Inc, US largest drug maker, announced that it has initiated merger talks with Allergen Plc. Although the takeover discussion is just at its early stages and there is no guarantee that a formal proposal will be actually reached, the news caught the attention of investors, as the merger could create the world largest health-care group in what would be the biggest M&A combination within the drug industry on record.

From the initial indiscretions, it seems that the merger talks were initiate by Pfizer, which, after failing to acquire UK-based AstraZenica last year, is still looking for a way to relocate its corporate domicile outside of the US. In fact, after the recent combination between Activis Inc, the resulting entity Allergen Plc transferred its formal domicile to Dublin, Ireland, making it an appealing tax inversion target for US-based competitors.

In addition, Pfizer is also looking to increase its size, economic of scale and drug production’s diversification before proceeding with a strategic split aimed at creating two independent entities: one focused on late stage drugs close to the end of their life cycle, and one focused on early stage drugs and research & development.

Allergen, with a portfolio of specialty mature drugs such a Botox, able to generate stable cash flows, and its newly acquired overseas tax domicile is ticking all the boxes for what Pfizer is looking in a potential acquisition target. Should the merger progress, analysts are already estimating that the combined entity could have a market capitalization close to USD 330 billion, making it the largest pharmaceutical firm on the market, surpassing health-care giant Johnson & Johnson, whose market capitalization stands at USD 278 billion.

Shares in Pfizer traded lower yesterday, closing at $34.77, 1.92% down on the day. Allergen’s stock opened over 8% instead, paired some gains throughout the trading session and closed at $305.03, posting a 6.21% daily gain.

Investors were also watching out for the results of Starbucks yesterday, as the largest coffee shop franchise reported its quarterly earnings after the US closing bell. The firm posted EPS of $0.43 per share, meeting analysts’ expectations, while beating revenue’s estimations by $10 million. Although some market participants were somewhat disappointed by the company’s in-line EPS, Starbucks delivered solid results that highlighted continuous and consistent sales growth.

The company’s comparable store sales increased by 8% in the quarter ending September 30th, helped by a 4% increase in traffic, despite a small increase in products’ prices implemented by the firm during the summer. Revenues grew across all geographic markets, with the company-own store sales jumping 19% to $3.89 billion.

Starbucks’ shares closed 1.59% lower on Thursday and declined another 1% in After-Hours trading; however, the stock has touched a new 52 weeks high of $63.84 early this week, and has appreciated close to 65% over the past 12 months.

This article was issued by Paolo Zonno, Trader/ Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.