Inside the Biggest M&A Deals You Need to Know (Pfizer, LVMH, Atlético Madrid, Parker Hannifin)

Hello and welcome back to the Market Maker podcast. A brand new week and a brand new show because now we are bringing back a designated program for M&A deals. And so what I'll try and do every week is just rattle through some main headlines, the biggest deal of the previous week, and then Piers and I will do a deep dive essentially into one of those chosen deals. In this case, Pfizer to acquire Mitsira. So quick run through the headlines. The first one is Apollo Sports Capital is taking control of Atlético Madrid, one of Europe's most prestigious football clubs, at a €2.2 billion valuation. The focus there shifting to boosting the squad, but not only that, developing the area around the stadium. Part of a broader private equity trend monetizing European football's global pool. In terms of if you're a student applying to some of the firms at the moment, PwC provided buy-side financial tax, IT, cyber due diligence, and tax structuring services to Apollo. So it could be an interesting one to take away if you're currently in the PwC pipeline. The other one here, you might be able to help me out with some pronunciations here. Piers, I'm sure you're at the airport having a quick look at this because LVMH's watch division mistaken a minority stake in Swiss movement maker Les Joux-Perret.

Nailed it. Nailed it.

Yeah, I did fail French.

I know.

So while it stays independent under Citizen's Group, this gives LVMH brands like TAG and Hublot closer access to high-end Swiss know-how. Reinforcing their manufacturing base as watch growth stays modest. Next deal was Parker-Hannifin is buying Filtration Group for $9.25 billion using cash and new debt to build a filtration powerhouse. 85% of revenue.

That's less sexy, less sexy than your high-end watches.

Well, no, that's what I do for the day job. And then when I go to the bar later and I'm trying to, you know, Um, so with that deal, Barclays was involved. Final one, Restaurant Brands, shortened to RBI, formed a joint venture with Beijing-based CPE, which will invest $350 million and take an 83% control of Burger King China to accelerate their openings. McDonald's or Burger King, Piers?

McDonald's. Okay. All day.

I don't Burger King. Full meal.

Overrated. Burger King's the most overrated fast food restaurant on the planet.

Okay. Wow.

Shrek Burger King.

I'm sure you're gonna get a lot of disgruntled comments on this video now. So part of that is a recent momentum, including a 10.5% same-store sales growth and new marketing around the Whopper and Crispr. Have you had a Crispr at Burger King?

I've never heard of a Crispr.

Well, you've, you know, your next stop needs to be in South Korea then, because that's their new lineup of chicken burgers. Of course.

Do like South Korean crispy chicken though. So yeah.

Okay. Very popular. So Morgan Stanley was advising RBI, but as I said, our deep dive deal of the week, shares of Mitsui fell over 15%, 1-5, in early trading last week. With weight loss drug developer accepting a sweetened offer from Pfizer to end a fierce bidding war between pharma giant and Danish rival Novo Nordisk. So this deal then, perhaps we could just look at some of the headlines, talk about some of the strategy, what's behind this move.

Yep. It's a great story because like you've got two big heavyweights kind of just slugging it out, a proper straight up bidding war. You kind of very rarely get these. And so it's actually just quite good fun, like on the sidelines watching it happen. So this is Pfizer squaring up against Novo and obviously, there's so many interesting themes here. Obviously, we talk about the AI thing. Well, kind of in healthcare, it's obviously weight loss, right? The weight loss drug is like the big kind of future kind of demand cake that everyone wants to try and get a piece of. And so that's why Metsera here is kind of caught in this bidding war between these two giants. So Pfizer, I mean, have been forced to stump up more cash and the final sort of agreement, basically, we'll get into the details in a minute, but it's basically $10 billion valuation. But Pfizer were hoping to pay a lot less than that, and unfortunately had to dip into their pocket. Just before we kind of get into the details, I thought it was quite interesting to think about, well, who are these two giants of the healthcare industry? You know, how big are they? Pfizer, Novo Nordisk. How big are they compared to each other? And actually, where— here's a pop quiz for you. Here's a question that you weren't expecting. Where, who's bigger first of all, do you think?

Well, my intuition would say Pfizer, but because I go to Pfizer first, I'm going to say Novo Nordisk.

You are correct. That's kind of what, that was the same. I had exactly the same thought. I thought, oh, Pfizer's got to be bigger, but it's not actually. So, and where do you think Actually, Pfizer's not even in the top 10 of global pharmaceutical companies. They're actually 11th.

Okay. Yeah.

That's surprising. Really surprised me. Novo Nordisk sits at number 8.

So I'm assuming Pfizer's been on a declining pattern then.

Well, yeah, but so has Novo Nordisk. So this is an interesting part of the story because really both of them, well, no. So Pfizer had a massive COVID boom, right? So they're one of the vaccines, they hugely kind of benefited from that COVID situation. Ever since then, obviously the COVID thing has gone away. Ever since then, they've been trying to get into this weight loss drug game, but all of their attempts have failed. So all of the tests they've had on any drug prototypes that they've been developing has basically failed. Hence why they're saying, all right, well, we've tried it organically. Let's just go out and buy into this game, shall we? Okay. Novo Nordisk, they're kind of, yeah, I would say less beneficial of COVID but their valuations halved over the last 2, 3 years. And actually this is about the weight loss drug. So they were one of the really, you know, the early sort of winners of this kind of weight loss situation. So you'll have heard of Wigovi and Osempic. All right, that's their kind of Novo's like crown jewels. Okay. And so their valuation got really pumped, let's say '22, '23, but ever since then it's halved. And that's because actually the demand and kind of again thinking about AI and trying to predict future demand, it's the same with this. Future demand has turned out to be A little bit underwhelming. And so Novo's market cap's halved, like in the last few years as a result of this. Now, I don't know whether that means the Novo CEO is just angry because I don't know what he was doing here, but I wonder if he was just meddling because Pfizer back in September agreed a deal with Metsera. They agreed terms and the deal was valued at $7.3 billion, right? Novo then obviously kind of were alerted to this 'cause Pfizer hasn't been in this weight loss drug game, so they're threatened by it. So they just go, well, actually, right, fine. You want, there's no way we're gonna let you buy Netsera for $7.3 billion. We're either gonna try and buy them ourselves, or at the very least, we're just gonna force you to pay a lot more money. I actually think maybe it's the latter here. But so Novo, so remember September deal agreed, right? Merger agreement agreed, $7.3 billion. October, Novo come in and go, right, we're bidding $8.5 billion.

And wasn't there a moment when the CEO of Novo was like giving it the big one?

Yeah. Well, he was at the White House just for something else and like, obviously you do a bit of a press piece. So he stepped on the mic and he got asked about the Pfizer deal and he, and he said, Novo's bid at $8.5 billion is higher. And he tells Pfizer to put its hand in its pocket and bid higher, which is why I'm saying, I wonder if he was just kind of meddling or just kind of bidding to force Pfizer to actually end up paying more. But anyway, right, he bid $8.5 billion. Pfizer then said, hang on, you can't do that. This violates antitrust laws. This is reckless. It's kind of an unprecedented type of approach. Pfizer actually then thought about suing Novo and Metsera, which couldn't have been great for the relationship. Anyway, it then turns out that Pfizer go, oh God, all right, fine, we'll bid some more. So they then bid up to $8.1 billion. And they didn't go to the $8.5 billion that Novo went to. And that's because there's some regulatory risk with the Novo deal because Novo already have a big slice of that weight loss drug sort of economy. It's like, well, the regulator and the antitrust people will be all over that. And so there's much more regulatory risk with Novo buying Metzera than Pfizer, because Pfizer aren't in the weight loss game. Because of that, Pfizer are saying, well, look, Novo's $8.5 billion bid, you know, our $8.1 billion, whilst lower in monetary terms, is actually a better bid because there's much less regulatory risk.

Is on the regulatory risk, is there anything to be said for the fact that one company is US and one company's European?

I mean, it's a good question.

Are you always going to, if it's a, you know, make a choice, pick your side and you're going to go with your domestic firm or have preferential treatment?

That is true. Yeah. I mean, but these are such global businesses. You're going to get regulatory scrutiny from lots of different jurisdictions. But yeah, what your, yeah, your home team player is going to get home advantage, right? You would've thought. So anyway, Pfizer bid $8.1 billion. All right. So Novo said, all right, well, we'll see your $8.1 billion. We'll raise you to $10 billion. So they bid $10 billion and then basically Pfizer was like, oh God, this is so annoying. Fine. We'll bid $10 billion as well. And then at that point, Novo just pulled out of the race. And I just wonder whether that—

oh, Mikey has just absolutely busted.

He has played a perfect— hand here and kind of folded at the right time. Anyway, Pfizer's having to stump up $10 billion when they originally had agreed terms at $7.3 billion. This is a little bit painful, but if we look at the structure of the deal, it's actually not $10 billion. It might become $10 billion. And so what they've bid, so at the $10 billion valuation, that's $86.25 per share, right? Deal's going to go like this. $65.6 per share cash. That's your kind of purchase price day one. The rest, which is another $20.65 per share, gets wrapped up in what's called a contingent value, right? Okay. A CVR. All right. This is basically an IOU that only pays out if certain future events happen. It's like an earnout. Okay. So it could be that Pfizer, yes, they do end up paying $10 billion, but actually they might not. And really it depends on the success of Net-Zero's weight loss drugs. 'Cause whilst they've got their main one at the moment, you've gotta inject yourself once a month. Now the once a month thing is good, it's less frequent, so that's why it's one of the popular ones, but they've got a couple of oral kind of tablets coming that are in testing and it's nearing the first in-human testing, right? Because basically what people are saying, who's going to win this weight loss game? In the end, you need something, you just need a pill you're going to swallow. Anybody who can nail that will find they're going to be, you know, looking really interesting in this race.

So yeah, just to add with the CVRs, I was just kind of curious. I just had a quick look. So these contingent value rights, CVRs, they're not common in M&A deals. And the rough estimate is less than 5% of all M&A deals use a CVR according to most industry estimates. Most common biotech and pharma deals because of FDA approval, clinical trial processes, and so on.

That's right. The hurdles are just way higher. You know, in the end, your product is drugs that human beings ingest. So the risks of not getting it right are absolutely the highest, highest, highest, highest, right? So therefore, you know, obviously the regulatory approval system is just a much bigger minefield. So that's why Yes, on paper. So Metzera have got their, their GLP-1s, right? And they've got two oral GLP-1 candidates coming down the track. It might be they fail. Now Pfizer knows all too well about this. They've been trying to organically create their weight loss drug themselves and it's failed at the testing phases, right? So the value of the Metzera business hinges on the success of the outcome of these two particular oral tablets, right? So that's why you've got this earnout. I mean, sure, if these tablets pass and like they're into production and we're, hey, let's go, well then, all right, $10 billion's a steal. Okay. But if they don't, well, all right, they're not going to pay the full $10 billion, but even so, what they end up paying, I can't do the maths that quickly, but it'd be around about, actually probably $7 around about $7 billion, that'll probably be expensive, right? They'll have overpaid. So it's quite a binary situation here. And that's why you get these structures that occur in the kind of healthcare deals, which is unusual in most other sectors.

And just for awareness, Citi were the financial advisor to Pfizer, Goldman Sachs, Guggenheim Securities, Bank of America, were for Mitsira. Maybe to conclude then on this one, just to recap sort of two points. What, why do a bidding war? Like what's the strategic gain of going into a bidding war? From how you've described it, it just sounds like don't do that because it's, you know, it's just going to cause problems on both ends going into that tit for tat kind of game. And then maybe to wrap up with some just overall top level strategic themes to take away for anyone thinking about this as a deal to articulate.

When you've got a prized asset in Mitsira, you know, it's such a, if those oral tablets pass, I mean, it's a goldmine, right? And it's such a difficult game and it's such a long, so this is mainly against about the pharmaceutical sector specifically. It's such a long road. To develop a drug, get it through all the testing, and then get it out to the mass market. Don't forget. So you've got a whole manufacturing and distribution and logistical kind of headache as well. It takes years and years and years and years, right? So when something comes up where, okay, you've got a smaller player who seemed to have cracked it in this particular niche, well then for the big guys, and particularly Pfizer, who have kind of missed out on this weight loss thing, it's like becomes This is our way of buying into this race. Now, for Novo, again, we don't know, maybe they did want to buy it as well because, all right, just add it to what they've already got and become a dominant player in the weight loss space. I mean, great, strategically that would make sense. But at the very worst, they've just made one of their key rivals spend an extra $2.7 billion that they didn't want to spend. So that's great for their, for Novo and their rivals, because then Pfizer have got less money to spend on other stuff, like developing new drugs, for example. Okay. So it just kind of puts the handbrake on one of your rivals. So, so for Novo, this is great. I mean, fine. All right. They didn't get the company. But they're already in that space. So worst case, they'll just put a handbrake on Pfizer and they'll be pretty happy about that.

Alright, well, to wrap up, like we always try and do with these deals, just to make it a nice off-the-shelf takeaway, if you'd like, as to things that have been covered in the conversation. So number one, obesity drugs is a growing and promising industry. I mean, you've talked about it. It's like the AI version within this healthcare space. So very large addressable opportunity by early next decade. So it's going to continue to draw sustained big pharma investor focus, number one. Number two, buy overbuild, just as you described the past for Pfizer. So this is about then utilising what Pfizer does have, which is global clinical manufacturing commercial footprint. It's like buy and build, use your existing infrastructure ecosystem to just get hold and then distribute. And then number 3, regulatory advantages, a real deal closes. In this case, an FTC call warned of risks in Novo Nordisk's proposed structure. Well, Pfizer stated this path had FTC approval, and so just pushed through. Number 4, you mentioned, and we've covered contingent value rights, CVRs, used as a hedge of deal risk. And then number 5, which I guess is something to just consider, which is the other external risks outside of the control of these companies and their drugs, which is the government and policy and law, which is the commercial environment for obesity drugs is changing pretty fast. One of the recent things that we've just had is a new White House-backed pricing framework which sets lower than expected price anchors for some of these obesity drugs. So again, capping the overall potential of this huge market opportunity. Alright, well look, we'll wrap it up there. Short and sharp. So hopefully a useful conversation nonetheless. If there's any particular deals that you see after listening to this that you would like us to cover, we'll record them generally at the end of the week. And then put them out at the beginning of the following week. So put in your bidding for what stories you'd like us to cover. Anything on the M&A deal front, we'll be doing our own anyway, and we'd love to have you take part. So shout out finally to our researcher, Sarp, as always for putting this stuff together for us. So absolutely. Take care and have a great week ahead. All the best.

Thanks a lot.