Is the Reported $400 Billion AstraZeneca-Bristol Myers Squibb Megamerger a Slam Dunk -- or a Disaster Waiting to Happen?

Earlier this month, AstraZeneca and Bristol Myers Squibb became the subject of merger rumors.

Investors reacted negatively to the rumors, even if on paper such a deal would create an oncology-focused big pharma powerhouse worth around $400 billion.

Considering regulatory uncertainty and other negatives, it makes sense why Wall Street isn't liking these merger rumors.

In recent weeks, two pharmaceutical stocks , AstraZeneca (NYSE: AZN) and Bristol Myers Squibb (NYSE: BMY) , have become the subject of merger rumors. At the start of the month, the Financial Times dropped a potential bombshell when, in an exclusive report, it reported that the two companies, both considered blue chip stocks , were close to merging in a deal that would create an oncology-focused big pharma powerhouse worth around $400 billion.

Put simply, investors reacted negatively to the proposed deal, pushing AstraZeneca shares down by around 9% after the rumors first emerged. Subsequent headlines suggest that the proposed merger isn't likely to happen.

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Still, until confirmed, it may be best to assume that a deal is possible. While on the surface, it may look like a winner, a closer look validates the market's more negative take on the proposition.

Admittedly, it's not uncommon for an acquirer's stock to fall upon announcement of a megamerger. After all, if an acquirer is paying for the stock with its own shares, it creates the opportunity for merger arbitrageurs to short the acquirer and go long the target, locking in profits from the deal spread.