Pfizer's Acquisition of Wyeth
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Case Code: BSTR342 Case Length: 19 Pages Period: 2008-2009 Pub Date: 2009 Teaching Note: Not Available |
Price: Rs.300 Organization: Pfizer, Wyeth Industry: Pharmaceuticals Countries: US Themes: Mergers and Acquisitions |
Abstract Case Intro 1 Case Intro 2 Excerpts
"Pfizer is in a more precarious position than most [in relation to the loss of revenue associated with Lipitor losing its patent protection], and now is certainly the right time for more deals, especially given the balance sheet power and strong cash positions of most pharmaceutical companies. The problem is that it is difficult to see too many more mega-mergers like this one. They haven't generally worked in the past and there is certainly no reason to think that they will now."
- Chris Stirling, Head of Chemicals and Pharmaceuticals, KPMG, Europe, in January 2009.
"Pfizer is in the most desperate state of anyone in the industry in terms of patent expirations. We feel that it is in the best interests of Pfizer to do a deal like this in order to shore up the top line."
- Herman Saftlas, Analyst, Standard & Poor, in January 2009.
Introduction
On January 26, 2009, US-based pharmaceutical major Pfizer Incorporated (Pfizer) and one of its rival firms, US-based Wyeth, announced that they had entered into a merger agreement. The merger would make Pfizer the world's largest biopharmaceutical company. As per the agreement, Pfizer would acquire Wyeth in a cash-and-stock transaction. Pfizer agreed to pay a total of US$ 50.19 per share of Wyeth making the total deal worth approximately US$ 68 billion. The transaction between Pfizer and Wyeth would result in Wyeth stockholders holding a 16% equity stake in the combined entity in addition to the cash they would receive from Pfizer.
The managements of both companies estimated that a cost saving of up to US$ 4 billion would result from the merger by the end of three years after the deal was closed. Pfizer, the largest pharmaceutical company in the world, had annual revenues of US$ 48 billion in the fiscal year 2008 (Refer to Exhibit IA, IB and IC for Financial Details of Pfizer). The company grew steadily over the decades to become the largest pharmaceutical company by producing several blockbuster drugs5 and also through a series of acquisitions.
Its most successful drug, Lipitor, the world's largest selling drug used to treat high cholesterol, contributed about US$ 12 billion to Pfizer's revenue in the fiscal year 2008. The patent for Lipitor was to expire in 2011 after which generic drug makers would be allowed to sell drugs developed using Lipitor's formula. Wyeth was ranked ninth in the world in terms of 2008 annual revenues (Refer to Table I for Top Ten Pharma Companies Based on 2008 Revenues). The company generated revenues of US$ 22.3 billion in the fiscal 2008 (Refer to Exhibit IIA, IIB, and IIC for Financial Details of Wyeth). Wyeth had a broad portfolio of products ranging from vaccines and prescription drugs to consumer healthcare and animal healthcare...
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