Wyeth/Pfizer Update: Analysts Comment on Potential Acquisition
February 4, 2009 -- On Jan. 26, 2009, Pfizer and Wyeth announced that they entered into a definitive merger agreement under which Pfizer will acquire Wyeth in a cash-and-stock transaction valued at $50.19 per share (at the time of the merger announcement), or a total of approximately $68 billion. The Boards of Directors of both companies have approved the combination.
The merger is expected to create a company with combined 2008 revenues of $71.3 billion. According to Hussain Mooraj, vice president, Healthcare & Life Sciences at AMR Research Inc., "the combined companies complement each other. For example, Pfizer can use its past experience with consumer health products to bolster Wyeth's strong presence in this market."
According to Martha Freitag, Pharmaceuticals & Biotech analyst for Argus Research Company, "the merger is projected to be accretive to Pfizer's diluted adjusted earnings in the second full year after closing through cumulative cost savings of approximately $4 billion by the end of the third year of the merger (2012) in addition to a $2 billion initiative that Pfizer just announced."
AMR's Mooraj notes that the combined forces must further reduce costs to serve this market in order to maximize the contribution to the new entity's bottom line -- "that is, if it doesn't spin off the consumer business (or the animal health business for that matter) in order to help underwrite the acquisition."
Freitag believes that the merger with Pfizer is likely to close, although there is a risk that it may not for reasons including failure to gain shareholder approval and antitrust objections. She believes that business overlaps are limited, however, so that possible divestiture of assets for antitrust reasons would be few. "Given the size of the transaction, we believe that the likelihood that a superior offer will emerge, while possible, is low," she says.
In the instance that the deal does go through, the merger is also expected to accelerate downsizing that has plagued the consumer goods and pharmaceutical industries as Pfizer said they would eliminate some 19,500 positions or 15 percent of the 130,000 Pfizer-Wyeth workforce should the deal be consummated.
"About 8,000 colleagues will be cut from Pfizer ranks and the remainder from Wyeth. Manufacturing and other facility closures will also be included. As with other mega mergers, Wyeth and Pfizer face the challenge of keeping the Wyeth workforce focused on the business prior to and through the merger and retaining top talent," Freitag concludes.
On the technology front, Pfizer and Wyeth are going to experience some integration challenges. "You're talking about two very different cultures in Pfizer and Wyeth," says Mooraj. "Myriad technical and IT considerations must be taken into account. This is going to be an interesting merger from an information systems integration perspective, as Wyeth has a very mature SAP deployment, and Pfizer made its bet to move solidly down the Oracle path."
Mooraj predicts that the combined strategies may be okay for the short term, but in the long-term, "the two companies will certainly have to rationalize."
The merger is expected to create a company with combined 2008 revenues of $71.3 billion. According to Hussain Mooraj, vice president, Healthcare & Life Sciences at AMR Research Inc., "the combined companies complement each other. For example, Pfizer can use its past experience with consumer health products to bolster Wyeth's strong presence in this market."
According to Martha Freitag, Pharmaceuticals & Biotech analyst for Argus Research Company, "the merger is projected to be accretive to Pfizer's diluted adjusted earnings in the second full year after closing through cumulative cost savings of approximately $4 billion by the end of the third year of the merger (2012) in addition to a $2 billion initiative that Pfizer just announced."
AMR's Mooraj notes that the combined forces must further reduce costs to serve this market in order to maximize the contribution to the new entity's bottom line -- "that is, if it doesn't spin off the consumer business (or the animal health business for that matter) in order to help underwrite the acquisition."
Freitag believes that the merger with Pfizer is likely to close, although there is a risk that it may not for reasons including failure to gain shareholder approval and antitrust objections. She believes that business overlaps are limited, however, so that possible divestiture of assets for antitrust reasons would be few. "Given the size of the transaction, we believe that the likelihood that a superior offer will emerge, while possible, is low," she says.
In the instance that the deal does go through, the merger is also expected to accelerate downsizing that has plagued the consumer goods and pharmaceutical industries as Pfizer said they would eliminate some 19,500 positions or 15 percent of the 130,000 Pfizer-Wyeth workforce should the deal be consummated.
"About 8,000 colleagues will be cut from Pfizer ranks and the remainder from Wyeth. Manufacturing and other facility closures will also be included. As with other mega mergers, Wyeth and Pfizer face the challenge of keeping the Wyeth workforce focused on the business prior to and through the merger and retaining top talent," Freitag concludes.
On the technology front, Pfizer and Wyeth are going to experience some integration challenges. "You're talking about two very different cultures in Pfizer and Wyeth," says Mooraj. "Myriad technical and IT considerations must be taken into account. This is going to be an interesting merger from an information systems integration perspective, as Wyeth has a very mature SAP deployment, and Pfizer made its bet to move solidly down the Oracle path."
Mooraj predicts that the combined strategies may be okay for the short term, but in the long-term, "the two companies will certainly have to rationalize."