Pfizer to buy Wyeth for $68B; cut 8,000 jobs

By: AP
By: AP

TRENTON, N.J. (AP) -- No. 1 drugmaker Pfizer Inc. said Monday it is buying No. 12 Wyeth for $68 billion in a deal that will quickly boost Pfizer's revenue and profit and transform it overnight into a more diversified company less reliant on its dwindling drug pipeline.

New York-based Pfizer managed with one stroke to overshadow 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.

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.

Pfizer also plans to cut about 8,000 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.

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.

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 2007 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.

"In one single transaction, the combination with Wyeth advances every single one of (our) strategies," Pfizer Chief Executive Jeff Kindler told reporters during a news conference.

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.

Pfizer, the maker of impotence pill Viagra and Detrol for overactive bladder, said it will pay $50.19 per share for Madison, N.J.-based Wyeth, a 14.7 percent premium to the company's closing price of $43.74 Friday.

Pfizer shares closed down $1.80, or 10.3 percent, to $15.65 Monday. Wyeth shares ended 35 cents lower at $43.39.

Analysts were split on how good the deal is but saw no benefit for consumers.

"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."

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.

The deal likely will close, she added. "The high cash contingent may make it difficult for interlopers to intercede, as he it involves both Pfizer's existing cash, and new debt" of $22.5 billion.

Analyst Steve Brozak of WBB Securities said it still doesn't solve Pfizer's long-term problem of not having enough promising drugs in its pipeline.

"The question becomes what are they going to do to fill that research gap," Brozak said.

From the first quarter through 2011, Pfizer will cut 10 percent of its current workforce of 81,900. Pfizer also is halving its prized dividend to 16 cents per share and eliminating five of its 46 manufacturing sites. Those closures will cost about $6 billion before taxes, of which $1.5 billion has been incurred, Pfizer said.

The company, long under pressure from big investors to make a bold move, said it expects eventually to cut the companies' combined workforce, now 129,000 people, by 15 percent. That includes the Pfizer cuts announced Monday, which will hit most departments, from administration and sales to manufacturing and research.

Pfizer has not identified which plants it will close. Wyeth, which sells Centrum vitamins, antidepressant Effexor and biotech arthritis and psoriasis treatment Enbrel, said there's been no decision on job cuts among its staff due to the acquisition. Both companies already have been cutting staff and other costs, as have most in the industry ahead of a wave of patent expirations worth far more than the new drugs coming on the market.

Pfizer said the new cost-cutting program will reduce spending by about $3 billion, $1 billion of which will be reinvested in the business.

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.

The deal is being financed by five banks: Bank of America Merrill Lynch, Barclays, Citigroup, Goldman Sachs and J.P. Morgan Chase.

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.

Both companies' boards of directors 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.

The deal is likely to be reviewed by the Federal Trade Commission, which splits antitrust oversight with the Justice Department and typically handles pharmaceutical acquisitions. FTC spokesman Mitch Katz said the agency doesn't comment on pending transactions.

Moody's Investors Service said it is reviewing Pfizer's ratings for a possible downgrade and Wyeth's for a possible upgrade.

Acquiring Wyeth adds strengths in developing and manufacturing vaccines and biologic drugs. Wyeth co-markets with Amgen Inc. the world's No. 1 biotech drug, Enbrel, and makes the world's top-selling vaccine, Prevnar, for pneumococcal bacteria that can cause painful ear infections and life-threatening meningitis and blood infections.

Together, the two companies will have 17 products with annual sales of $1 billion or more, including Prevnar, Effexor, Detrol, Lyrica for fibromyalgia and nerve pain, and blood pressure drug Norvasc.

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.

Excluding about $2.3 billion in legal charges, the company says profit rose to 65 cents per share.

Analysts polled by Thomson Reuters expected profit of 59 cents per share on revenue of $12.54 billion.

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 related to the acquisition, Pfizer said.

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.

Excluding restructuring charges, the company earned 78 cents per share in the latest quarter. Worldwide revenue fell 7 percent to $5.35 billion, dragged down partly by unfavorable currency exchange rates.

Analysts on average expected Wyeth to earn 79 cents per share on revenue of $5.79 billion.

Associated Press writers Damian J. Troise in New York and Christopher S. Rugaber in Washington contributed to this report.

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