jakncoke
01-24-2009, 10:05 PM
SAN FRANCISCO (MarketWatch) -- Pfizer Inc. is close to an agreement to acquire rival drug maker Wyeth for between $65 billion and $70 billion in a cash-and-stock deal that could be announced as early as next week, the Wall Street Journal reported.
Pfizer (PFE:
17.45, +0.24, +1.4%) , the world's largest drug maker, would cover about two-thirds of the deal in cash and the remainder in company stock, the Journal reported in its online edition. The transaction would value Wyeth (WYE:
43.74, +4.91, +12.6%) at about $50 per share, almost 30% more than Wyeth's closing price Thursday.
News of the potential merger sent shares of Wyeth up $4.91, or 12.6%, to close at $43.74 in Friday's session. Pfizer shares rose 24 cents to end the day at $17.45.
The effort by Pfizer represents a high-stakes gambit, since the company has not had a spotless track record in making large acquisitions, the Journal report noted. Read the Journal's story.
Pfizer and Wyeth have been in talks for months, the Journal reported, citing unnamed sources familiar with the matter, but the precarious economy makes the negotiations especially fragile and a deal might not be agreed upon.
The possible mega-merger comes at time when the global pharmaceutical industry is suffering from flagging product development and high fixed costs.
Like other major pharmaceutical firms, Pfizer and Wyeth face the looming expiration of patents on some of their most lucrative products, as well as intense competition from makers of generic drugs.
Pfizer is grappling with the expected loss of patent protection for its blockbuster cholesterol drug Lipitor in 2011. Lipitor makes up 25% of the company's total sales and carries higher-than-average gross margins.
Wyeth, meanwhile, derives about 35% of its sales from innovative biologic drugs and boasts a strong pipeline of new treatments in late-stage development, according to a report from independent investment research firm Morningstar Inc.
"We believe a merger would make sense," Morningstar analyst Damien Conover wrote in a research note published on Friday. He said a transaction would offset the adverse impact on Pfizer from the Lipitor patent expiration and give the combined company several critical biologic products.
In addition, Conover noted that Wyeth has about $14 billion in cash and a smaller dividend payout, which should ease investors' concerns about the viability of Pfizer's dividend.
Yet he cautioned that if Pfizer overpays for Wyeth, the benefits of a merger -- and perhaps the deal itself -- would be in doubt.
"The premium that might be demanded by Wyeth could represent the biggest hurdle for the merger," Conover said. "Negotiations could trail on throughout the year, as neither company needs to complete the deal immediately. However, with the Lipitor patent expiration approaching in 2011, we believe Pfizer would like to put its $25 billion-plus of cash to work well before 2011."
Other obstacles to the merger, he added, include Pfizer's "limited access" to major financing and the "relative cheapness" of Pfizer's shares, which could dilute the transaction's value.
http://www.marketwatch.com/news/story/Pfizer-bid-Wyeth-could-top/story.aspx?guid={0A086A0D-1F0D-4F93-ACB8-7A4376F0ED07}
a lot of cash and holy crap at 25% of Pfizer income coming from Lipitor
Pfizer (PFE:
17.45, +0.24, +1.4%) , the world's largest drug maker, would cover about two-thirds of the deal in cash and the remainder in company stock, the Journal reported in its online edition. The transaction would value Wyeth (WYE:
43.74, +4.91, +12.6%) at about $50 per share, almost 30% more than Wyeth's closing price Thursday.
News of the potential merger sent shares of Wyeth up $4.91, or 12.6%, to close at $43.74 in Friday's session. Pfizer shares rose 24 cents to end the day at $17.45.
The effort by Pfizer represents a high-stakes gambit, since the company has not had a spotless track record in making large acquisitions, the Journal report noted. Read the Journal's story.
Pfizer and Wyeth have been in talks for months, the Journal reported, citing unnamed sources familiar with the matter, but the precarious economy makes the negotiations especially fragile and a deal might not be agreed upon.
The possible mega-merger comes at time when the global pharmaceutical industry is suffering from flagging product development and high fixed costs.
Like other major pharmaceutical firms, Pfizer and Wyeth face the looming expiration of patents on some of their most lucrative products, as well as intense competition from makers of generic drugs.
Pfizer is grappling with the expected loss of patent protection for its blockbuster cholesterol drug Lipitor in 2011. Lipitor makes up 25% of the company's total sales and carries higher-than-average gross margins.
Wyeth, meanwhile, derives about 35% of its sales from innovative biologic drugs and boasts a strong pipeline of new treatments in late-stage development, according to a report from independent investment research firm Morningstar Inc.
"We believe a merger would make sense," Morningstar analyst Damien Conover wrote in a research note published on Friday. He said a transaction would offset the adverse impact on Pfizer from the Lipitor patent expiration and give the combined company several critical biologic products.
In addition, Conover noted that Wyeth has about $14 billion in cash and a smaller dividend payout, which should ease investors' concerns about the viability of Pfizer's dividend.
Yet he cautioned that if Pfizer overpays for Wyeth, the benefits of a merger -- and perhaps the deal itself -- would be in doubt.
"The premium that might be demanded by Wyeth could represent the biggest hurdle for the merger," Conover said. "Negotiations could trail on throughout the year, as neither company needs to complete the deal immediately. However, with the Lipitor patent expiration approaching in 2011, we believe Pfizer would like to put its $25 billion-plus of cash to work well before 2011."
Other obstacles to the merger, he added, include Pfizer's "limited access" to major financing and the "relative cheapness" of Pfizer's shares, which could dilute the transaction's value.
http://www.marketwatch.com/news/story/Pfizer-bid-Wyeth-could-top/story.aspx?guid={0A086A0D-1F0D-4F93-ACB8-7A4376F0ED07}
a lot of cash and holy crap at 25% of Pfizer income coming from Lipitor