I’ve written lots about M&A – takeovers specifically – and the typically divergent share price reactions of predator and prey. Rather than discuss another UK Index share price jump following a bid approach though, how about two blue-chips trading higher because they walked away from a deal? Why? Because it backs up the rule of thumb that the predator’s share price falls when it is set to spend money and take risk, while the prey’s share price rises because a premium (typically 30%) needs to be paid to convince shareholders to give up control of their shares and any future share price gains/dividends.

Today, however, I’m not talking about the target/prey walking away because management is confident it can generate more shareholder value by going it alone, or that another higher bid will come along. I’m focusing on share price reactions – 4% gains to be precise – for two large-cap predators, derived from shareholders effectively breathing a sigh of relief that management has withdrawn its bids for a chunk of another company’s operations.

Yesterday, Reckitt Benckiser shares jumped 4% on news that it had ended discussions with US pharmaceutical giant Pfizer about acquiring part of its $20bn Consumer Healthcare business. Reckitt wanted the bit with Ibuprofen but Pfizer only wanted to sell the whole Consumer Health unit. Reckitt elaborated that it had decided to focus on integrating and generating synergies from last year’s already significant $16bn acquisition of Mead Johnson Nutrition, as well as reorganising itself into two units – Consumer Health and Hygiene Home – at the group level. Investors clearly prefer management concentrating on embedding one acquisition before making another. Reckitt may also have dodged a $20bn bullet, not having to acquire (and being stuck with) the whole division, just to secure the assets it really desired.

Today, GlaxoSmithKline shares are up almost 4% after it too had pulled out of talks with Pfizer about its Consumer Healthcare division, stating that new opportunities “must meet our criteria for returns and not compromise our priorities for capital allocation” which suggests the deal was too expensive. The share price reaction implies investors relieved to be spared the expense and stress of big M&A, which many argue only benefits the prey (premium paid) and destroys shareholder value, long term, by being too expensive and difficult to integrate. There was also reassurance for those concerned that a $20bn acquisition might jeopardise the valuable 6% dividend yield (among top 15 on UK 100 ), allowing the company to stay focused on what it does best – pharmaceuticals.

To add a third share price reaction to the mix, and further back up the aforementioned rule of thumb, it was thus no surprise to see Pfizer shares down by around 2% yesterday, and another 1% today, now unlikely to get a cash injection and offload the Consumer Health division. The more muted reaction today may be due to pharma giants being among the big defensive non-cyclical stocks which are sought out during periods of market turmoil, such as today’s with stock indices sharply lower after President Trump introduced tariffs to hurt China, fired another key advisor (and replaced him with a colourful character) and suggested he might veto a $1.3tn government spending bill.

This week’s share price moves serve as a nice reminder that the M&A rule of thumb (prey shares rise, predator shares fall) is not a one way street. Because not all deals succeed. And that good/bad news one day can be the reverse the next. Some deals fail because shareholders vote against, some fail because regulators refuse it on competition grounds, some fail – as we’ve seen this week – because discussions between the two parties sour. Whilst the chance of success gives the opportunity to trade the initial deal reaction, the chance of failure gives you a similar chance to trade a deal’s collapse, whether you want to trade the long or short side. And to know what the next deal might be you’ll want access to our Merger & Takeover Corner publication, highlighting current and historic deals and possible share price reactions.

With financial markets moving around on Trump tweets, geopolitics, macro data and corporate news/results, make sure you have a helpful broker in your corner. Not just to clean that bloodied nose after a trading loss, but to help you avoid the next damaging market move (you can trade short as well as long) and make sure you are best placed to land the market a sucker punch that delivers you the profits you are looking for.

Allow Accendo Markets’ expert team of analysts and traders to help you stay on top of the markets, each and every day. If I’ve said it once I’ve said it a thousand times – I’m not here to call the market top or bottom (risky business, no crystal ball, tends to be expensive). I am, however, here to alert you to when things may be turning, so you are in a position to capitalise. To know when this sell-off may be over, or to trade any further downside potential, get access to our trading research and profit from your decision.

 Mike van Dulken, Head of Research, 23 March