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* Initial 30 pct cash component too low for AZ investors
* Pfizer may give more cash but limited by UK domicile move
* "White knights" thin on ground, Amgen said not interested
By Ben Hirschler and Simon Jessop
LONDON, April 29 (Reuters) - U.S. drugmaker Pfizer will need to raise its bid for AstraZeneca to around$105-110 billion and increase the proportion of cash in theoffer to win its British rival, investors believe.
After showing his hand and pressuring his smaller competitoron Monday by disclosing two bid approaches, both of which wererebuffed, Pfizer CEO Ian Read has until May 26 to "put up orshut up" under UK takeover rules.
Importantly, after a jump in Pfizer shares, Read knows hehas the backing of many of his own shareholders, while thethreat of a counterbid does not appear imminent.
Read and his team will be using the time available toconsider how they can sweeten an offer made in January worth58.8 billion pounds ($98.8 billion), or 46.61 pounds a share,comprising 30 percent cash and 70 percent shares.
AstraZeneca said that offer fell "very significantly" shortand it specifically flagged the small cash component, whichwould leave investors exposed to the risks faced by Pfizer inexecuting an ambitious mega-merger.
So far, the British group has refused to talk to Pfizer -but it has not ruled out discussions altogether and one personclose to the company said the cash component of any fresh offerwould be key in determining if there was engagement in future.
Cash is uppermost in the minds of AstraZeneca shareholders,too.
"For it to move forward from here, they (Pfizer) need tofind a way of getting Astra management engaged and that feelslike it needs a specific value being applied to the group, andit needs the cash element to be higher," said Alastair Gunn ofJupiter Fund Management, which is a top-20 investor inAstraZeneca.
Analysts at Jefferies believe a deal could get done withPfizer offering a 50/50 split between cash and shares at a priceof at least 50 pounds a share.
Several investors contacted by Reuters confirmed they werelooking for 50 pounds a share or more, with Neil Veitch of SVMAsset Management predicting an agreed deal somewhere between 52and 53 pounds.
Because a key goal of the planned takeover is to get the taxadvantages of re-domiciling the enlarged group in Britain, thereis a limit to how much cash Pfizer can offer, since at least 20percent of its shareholders are required to be UK-based.
"We estimate Pfizer will need to issue a minimum of around$55 billion in shares to comfortably meet this requirement,"Jefferies said.
Based on the original 30 percent cash element, Moody'sanalyst Michael Levesque said Pfizer could fund the whole of thecash portion with offshore funds.
Pushing the cash element to 50 percent, however, wouldrequire taking on some incremental debt.
SORIOT CANVASSES INVESTORS
AstraZeneca CEO Pascal Soriot, whose efforts to revive thefirm's drug pipeline have proved a key draw for Pfizer, will nowbe canvassing the views of shareholders as a "priority", withmachinery in place for meetings with big and small investors,two people close to the company said.
Soriot and chairman Leif Johansson will also be weighingstrategic alternatives for the drugmaker, including thepotential spin-off of non-core therapy areas like infection andneuroscience, as well as possible acquisitions.
But "white knight" counterbidders ready to take on Pfizerare likely to be thin on the ground - not least because fewother companies would enjoy the same cost and tax benefits fromacquiring AstraZeneca as Pfizer.
Amgen is one player for whom an AstraZeneca dealmight make sense, since the two companies are co-developing anumber of drugs, but a person familiar with the U.S. biotechfirm said on Tuesday it was not interested in entering the fray.
French drugmaker Sanofi is another company withthe heft and M&A experience to consider intervening, yet its CEOChris Viehbacher said on Tuesday he planned to stick to smallerbolt-on acquisitions.
GlaxoSmithKline, the British company with arguablythe greatest potential to extract synergies from buyingAstraZeneca, has meanwhile said for several years it is notinterested in large deals.
($1 = 0.5950 British Pounds) (Additional reporting by Anjuli Davies; Editing by Mark Potter)
