In the wake of AstraZeneca’s (AZ) stout rebuttal of Pfizer’s overtures to a takeover bid, media all over the place are reporting the ‘disappointing’ news that AZ’s share price has ‘tumbled’. In my opinion this is typical of the short-memory effect that looking at share prices seems to somehow bestow on even some quite sensible people.
Look at the facts and circumstances – AZ has just been subject of speculation over a possible takeover. This inevitably leads to an increase in the share price as speculators look to take advantage of the premium price that any bid is bound to offer, or the rising price in the build-up (partly caused by demand arising from their own speculation).
Once the possibility of that short-term gain is removed – in this case by AZ shutting the door in Pfizer’s face – the price will inevitably go down, as those short-term investors seek to cash in their holdings and go off elsewhere in search of another stock that’s on the rise.
But here’s the important bit. AZ’s share price is still significantly higher than it was in the middle of April, before all this talk started. The only people who have actually lost money are the ones who bought their shares after 25 April, and sold them yesterday or today.
— Pfizer (red) and AZ (blue) over the last month (from Google finance)
It is slightly more revealing to look at Pfizer’s share price over the last couple of months, which overall is significantly down. This wasn’t helped by some decidedly mediocre sales figures in the company’s quarterly announcement at the beginning of May. And the further Pfizer’s price falls, the less valuable that combined cash-and-stock offer becomes.