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Pfizer to buy Wyeth for $68B; cut 8,000 jobs
2009-01-26
TRENTON, N.J. - Pfizer Inc., the world's largest drugmaker, said Monday it is buying rival Wyeth for $68 billion in a deal that will quickly boost Pfizer's revenue and diversification and -- if it works as advertised -- help the company become more nimble. Muzi.com News 10086994-1 (muzi.com)The deal came as New York-based Pfizer set out a full house of issues: a 90 percent drop in income, a hefty charge to end an investigation, a severe cut in its dividend, a shockingly low profit forecast for 2009 and 8,000 job cuts starting immediately. Muzi.com News 10086994-2 (muzi.com) That's all on top of the colossal problem triggering this deal: the expected loss of $13 billion a year in revenue for cholesterol fighter Lipitor starting in November 2011, when it gets generic competition. Muzi.com News 10086994-3 (muzi.com) Pfizer also plans by 2011 to cut about 8,190 jobs, 10 percent of its workforce, as part of what it expects will be a staff reduction totaling 15 percent of the combined companies' workers -- implying a total job loss of almost 20,000. Muzi.com News 10086994-4 (muzi.com) By buying Wyeth, Pfizer will mutate from a maker of blockbuster pills to a one-stop shop for vaccines, biotech drugs, traditional pills and nonprescription products for both people and animals. Muzi.com News 10086994-5 (muzi.com) But plenty of pharmaceutical industry mergers have not lived up to their initial promise, including the deals that enabled Pfizer to leapfrog to the top of the industry -- buying Warner-Lambert in 2000 and, in 2003, Pharmacia Corp. Pharmacia was itself the result of the difficult marriage of Michigan's Upjohn & Sweden's Pharmacia, which took years and eventually new management to get beyond culture clash and fully integrate. Muzi.com News 10086994-6 (muzi.com) Pfizer and Warner-Lambert, likewise, had differences over Warner's focus on consumer health and Pfizer's "big corporation" image, plus "no vision as to which divisions would win out and which people would keep their jobs," recalled analyst Steve Brozak of WBB Securities. Muzi.com News 10086994-7 (muzi.com) "A lot of the turmoil that those acquisitions created hurt morale and productivity -- there's no doubt about that," Pfizer Chief Executive Jeff Kindler conceded during a news conference. Muzi.com News 10086994-8 (muzi.com) "We're in a much better position to bring on board the scientists and programs and projects that Wyeth has," Kindler said. Muzi.com News 10086994-9 (muzi.com) The cash-and-stock deal, one of the industry's biggest ever, is expected to close late in the third quarter or in the fourth quarter. It comes as Pfizer's 2008 fourth-quarter profit takes a brutal hit from a $2.3 billion legal settlement over allegations it marketed pain reliever Bextra and possibly other products for indications that had not been approved. Muzi.com News 10086994-10 (muzi.com) "In one single transaction, the combination with Wyeth advances every single one of (our) strategies," Kindler told reporters during a news conference. Muzi.com News 10086994-11 (muzi.com) Those goals include increasing sales in emerging markets, enhancing the ability to treat specific diseases, such as Alzheimer's, and becoming a top player in vaccines and biologic drugs, which are made from living cells. Muzi.com News 10086994-12 (muzi.com) Pfizer, also known for the impotence pill Viagra, said it will pay $50.19 per share for Madison, N.J.-based Wyeth. Muzi.com News 10086994-13 (muzi.com) Pfizer shares closed down $1.80, or 10.3 percent, to $15.65 Monday. Wyeth shares ended 35 cents lower at $43.39. Muzi.com News 10086994-14 (muzi.com) Analysts were split on how good the deal is but saw no benefit for consumers. Muzi.com News 10086994-15 (muzi.com) "This deal doesn't bring Pfizer the cure for Lipitor" revenue losses, but it brings short- and long-term cost savings, said Erik Gordon, biomedical analyst and professor at University of Michigan's Ross School of Business. "It increases Pfizer's research capabilities in biologics, and it's good for Wyeth because Wyeth will now be able to tap into Pfizer's marketing machine." Muzi.com News 10086994-16 (muzi.com) Credit Suisse analyst Catherine Arnold wrote to investors that the deal's addition to Pfizer earnings "should be massive," and could start even before the second year. Muzi.com News 10086994-17 (muzi.com) The deal likely will close, she added, and the amount of cash and debt that Pfizer has put together makes other suitors for Wyeth unlikely Muzi.com News 10086994-18 (muzi.com) Brozak said it still doesn't solve Pfizer's long-term problem of not having enough promising drug candidates. Muzi.com News 10086994-19 (muzi.com) "The question becomes what are they going to do to fill that research gap," Brozak said. Muzi.com News 10086994-20 (muzi.com) Meanwhile, Pfizer is halving its dividend to 16 cents per share and eliminating five of 46 manufacturing sites. Those closings will cost about $6 billion before taxes, of which $1.5 billion has been incurred, Pfizer said. Muzi.com News 10086994-21 (muzi.com) Pfizer has not identified which plants it will close. Wyeth said there's been no decision on job cuts among its staff due to the acquisition. Muzi.com News 10086994-22 (muzi.com) Pfizer said the new cost-cutting program will reduce spending by about $3 billion, $1 billion of which will be reinvested in the business. Muzi.com News 10086994-23 (muzi.com) Pfizer Chief Financial Officer Frank D'Amelio said the company will put up $22.5 billion in cash and $23 billion in stock for the purchase, with $22.5 billion in debt covering the rest. Muzi.com News 10086994-24 (muzi.com) The deal is being financed by five banks: Bank of America Merrill Lynch, Barclays, Citigroup, Goldman Sachs and J.P. Morgan Chase. Muzi.com News 10086994-25 (muzi.com) The tie-up will bring about $4 billion in cost savings by the end of 2012 and should add to Pfizer's earnings per share in the second full year after closing. Muzi.com News 10086994-26 (muzi.com) Both companies' boards approved the deal but Wyeth shareholders must do so. Wyeth's CEO, Bernard Poussot, will stay on through the transition but not beyond that. The companies did not discuss the fate of other top Wyeth managers. Muzi.com News 10086994-27 (muzi.com) The deal is likely to be reviewed by the Federal Trade Commission, which typically handles pharmaceutical acquisitions. FTC spokesman Mitch Katz said the agency doesn't comment on pending transactions. Muzi.com News 10086994-28 (muzi.com) Fitch Ratings downgraded Pfizer's credit rating to 'AA' from 'AA+,' and placed the company's ratings on a negative watch. Fellow ratings agencies Moody's Investors Service and Standard & Poor's are reviewing their ratings. Muzi.com News 10086994-29 (muzi.com) Acquiring Wyeth adds strengths in vaccines and biologic drugs. Together, the two companies will have 17 products with annual sales of $1 billion or more. Muzi.com News 10086994-30 (muzi.com) Shortly after announcing the Wyeth deal, Pfizer said fourth-quarter profit plunged on a charge to settle investigations into off-label marketing. The company earned $268 million, or 4 cents per share, compared with profit of $2.72 billion, or 40 cents per share, a year prior. Revenue fell 4 percent to $12.35 billion from $12.87 billion. Muzi.com News 10086994-31 (muzi.com) Excluding about $2.3 billion in legal charges, the company says profit rose to 65 cents per share. Muzi.com News 10086994-32 (muzi.com) Analysts polled by Thomson Reuters expected profit of 59 cents per share on revenue of $12.54 billion. Muzi.com News 10086994-33 (muzi.com) In 2009, Pfizer expects earnings per share between $1.85 and $1.95, below forecasts for $2.49. The outlook includes costs of 21 cents per share related to financial strategies tied to the acquisition, Pfizer said. Muzi.com News 10086994-34 (muzi.com) Wyeth said Monday its fourth-quarter profit declined 5.6 percent, to $960.4 million, or 71 cents per share, down from $1.02 billion, or 75 cents per share, in the 2007 quarter. Muzi.com News 10086994-35 (muzi.com) Excluding restructuring charges, the company earned 78 cents per share in the latest quarter. Revenue fell 7 percent to $5.35 billion, dragged down partly by unfavorable currency exchange rates. Muzi.com News 10086994-36 (muzi.com) Analysts expected Wyeth to earn 79 cents per share on revenue of $5.79 billion. Muzi.com News 10086994-37 (muzi.com) _____ Muzi.com News 10086994-38 (muzi.com) Associated Press writers Damian J. Troise in New York and Christopher S. Rugaber in Washington contributed to this report. Muzi.com News 10086994-39 (muzi.com)
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