Philadelphia / New York: Pfizer Inc said it would acquire rival drugmaker Wyeth for $68 billion in a blockbuster deal that will sustain Pfizer profits and dramatically reshape the pharmaceutical industry.
Pfizer, the world’s largest drugmaker, raised $22.5 billion from a consortium of banks to finance the deal. It also cut its dividend and posted lower fourth-quarter results.
The mega-deal, announced on Monday, comes amid a merger drought as tight credit markets make borrowing costly and difficult. Analysts said the fact that Pfizer could secure financing was a positive signal for the market.
The deal would help Pfizer cope with a major gap in revenue in 2011, when its blockbuster Lipitor cholesterol treatment will begin to face US generic competition. Next year, Wyeth loses patent protection on its own top drug, the anti-depressant Effexor XR.
The deal would also help Pfizer diversify into vaccines and injectable biologic medicines by adding Wyeth’s big-selling Prevnar vaccine for childhood infections and Enbrel rheumatoid arthritis treatment. Additionally, Pfizer would realize major cost savings by streamlining areas in which the companies overlap.
“Pfizer has a major issue with Lipitor going generic in a couple years, so they have a major pipeline that they have to fill. They’re cash-rich, so a combination of that has them in the market,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.
Pfizer typifies many large drugmakers, which have struggled to produce new blockbusters to replace those on which they lose exclusivity.
Pfizer will pay $50.19 for each Wyeth share — $33 in cash and 0.985 share of Pfizer. That represents a 15% premium over Wyeth’s closing stock price of $43.74 on Friday.
Based on Wyeth’s 1.33 billion shares outstanding as of 31 October, the deal is worth $66.8 billion; including Wyeth’s stock options, it is worth $68 billion.
The deal is expected to boost Pfizer’s earnings in the second full year after closing and result in cost savings of $4 billion by the third year, the company said.
Pfizer shares fell to $16.70 in premarket trade from a Friday close at $17.45, while Wyeth rose to $45.90 from $43.74. Wyeth shares surged 12.6% on Friday as news of a possible deal circulated.
A merger of Pfizer and Wyeth could trigger a wave of consolidation in the cash-rich pharmaceutical sector as drugmakers look to diversify revenue sources in the face of competition from generic-drug rivals, analysts said.
“The outlook for the industry has steadily waned, (with) industry P/E multiples declining under the combined onslaught of price pressure, aggressive generic competition and low R&D productivity,” Deutsche Bank analysts said in a note.
Analysts said AstraZeneca could be a takeover target, although there are also reasons a deal might not happen.
In sealing the Pfizer deal, Wyeth ended talks to buy Dutch vaccine firm Crucell. Crucell shares plummeted 21.1% to €12.23.
The deal is subject to Pfizer’s financing sources not backing out if the company’s financial health suffers a material adverse change or it fails to maintain a certain credit rating.
Pfizer and Wyeth expect the transaction, which carries a breakup fee of 3%, to close at the end of the 2009 third quarter or during the fourth quarter.
Analysts said the fact that Pfizer could secure financing amid the credit crunch was a positive sign.
“Deals of this quality and this magnitude will rekindle enthusiasm and hope about equity markets,” said Andre Bakhos, president of Princeton Financial Group. “In the midst of a global recession, here is Pfizer, hopefully spending their dollars wisely.”
Pfizer was advised by Bank of America Merrill Lynch, Goldman Sachs, J.P. Morgan, Barclays and Citigroup. Wyeth’s financial advisers were Morgan Stanley and Evercore Partners.
Pfizer’s fourth-quarter results were hurt by a higher tax rate, charges related to cost-cutting, and settlement costs from an investigation by US authorities. The company earned $266 million, or 4 cents per share, on revenue of $12.35 billion.
Wyeth on Monday posted fourth-quarter results that fell short of expectations. The company earned 71 cents a share on revenue of $5.35 billion, compared with an average Wall Street forecast of 79 cents a share on revenue of $5.79 billion.