News & Analysis

Shareholder meltdown! AstraZeneca poised for volatility as pay row erupts

Andrew Saks, Wednesday, 12 May 2021

Is it just hot air, or is it a genuine matter which will cause a share price drop?

It has not so far.

As this Wednesday afternoon begins, all eyes are on the currently completely horizontal line that represents the stagnant and non-volatile share price of European pharmaceutical giant AstraZeneca.

After the three major pharmaceutical companies that have dominated the news headlines during the past few months have not only battled for supremacy among political and public relations circles, but also in terms of share price and attractiveness as a tradable asset by investors and traders alike.

Ordinarily, today would be unlike any other day, the mainstream news channels replete with the same relatively repetitive dialog about Moderna, AstraZeneca and Pfizer and the geopolitical spotlight that all of them are suddenly under.

Just a few years ago, it would have been reasonable to assume that most people, myself included, associated the AstraZeneca or Pfizer brands with garden fertilizer, sold by the packet in hardware stores across Northern Europe for the purposes of applying to flowerbeds and assisting in the cultivation of domestic gardens.

Now, within just a few months, these brands have become not only household names, but stalwarts which can do no wrong commercially, with revenues going from strength to strength due to cast-iron contracts with national governments.

Today, however, there is trouble in the boardroom at AstraZeneca, representing the first internal dissent ever reported in a company that was never newsworthy but now is never out of the news.

It is being anticipated that there could be an investor uprising within the company, as what is being touted as a very nuanced "shareholder spring" is now beginning in the City of London.

By merely referring to it in that type of terminology, unrest is brought to mind.

The multinational firm which has been a prized pick among investors and traders in indices over recent months had its Annual General Meeting this week, at which the £18 million pay package that was awarded to CEO Pascal Soriot was covered.

This revelation angered major shareholders of whom 40% cast their vote against allowing Mr Soriot to receive such an incredible sum.

The motion was, rather surprisingly, passed and Mr Soriot got his bonanza pay packet. It is surprising because unlike large firms such as Tier 1 banks and global internet giants, AstraZeneca is having its five minutes of fame right now, and has a lot to lose by placing decisions like these into the hands of the sudden all-seeing-eye of the public.

Mr Soriot, who received £15.4million last year, is one of Britain's top-earning executives but claims he is underpaid compared to the bosses of other big drug makers.

Thus far, no movements have arisen in the share price, however what if disgruntled shareholders decide not to stand by the company's decision, consider it a potential reputational issue and bail out? That would cause a lot of AstraZeneca stock to suddenly appear on the market, and subsequently reduce its value.

Proponents of the huge increase in earnings for Mr Soriot may be hiding their disapproval, because some analysts in the City think that if Mr Soriot is denied his £18 million package, £2.3 million more than his previous one, he may leave and that would cause a far more grave downward movement in AstraZeneca shares. One particular City trader said today "It could cost them more than a few million a year".

In fact, this revolt by shareholders came in the form of large firms that have investments in the company, so large is its potential impact on decision making of boards, perhaps it is being used as a form of 'people power' in that shareholders can band together to vote down intrinsic board decisions relating to top executives and have them redact the motions.

Aviva Investors and Standard Life Aberdeen were among those who opposed Mr Soriot's payrise.

As if the level of volatility hasn't been active enough over recent times among drug company stock.

It's as though the cliff-hanger at the end of a movie has been moved to the interval.

 

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