Pfizer Inc. and Wyeth have tied the knot in the drug industry's most expensive marriage this year, but the marriage will result in the closure of local sites.
Nine months after Pfizer announced an agreement to buy Wyeth for $68 billion, the deal closed Thursday, a day after the companies got final approval from the Federal Trade Commission and the Canadian Competition Bureau.
The new company will mothball Wyeth's Great Valley, Pa. location, but keep its former headquarters site in Collegeville, Pa. Still, 20,000 jobs are expected to be cut company-wide.
It's a smart -- and necessary -- move for Pfizer, changing it overnight from a marketing machine with some popular pills facing patent expirations into a diversified health care giant. That's because Wyeth is a major maker of biotech drugs, vaccines and animal and consumer products, as well as traditional pills such as blockbuster antidepressant Effexor.
Pfizer, the world's biggest drugmaker by revenue, solidifies that position by buying No. 13 Wyeth. More important, the combined company can improve its bottom line by closing offices and factories, slashing jobs and cutting other costs. Nearly 20,000 job cuts are expected; thousands of workers are already gone.
In trading Thursday, Pfizer shares rose 29 cents to $17.66. Wyeth added 35 cents to $50.39.
The companies will begin joint operations on Friday, with Wyeth operating as a wholly owned subsidiary of Pfizer.
Meanwhile, Moody's Investors Service lowered its long-term rating of Pfizer to "A1" from "A2." The company said early this year, after the deal was announced, that it would review Pfizer's rating and expected to make such a downgrade.
"The downgrade...reflects excellent strategic benefits of the Wyeth acquisition, offset by higher financial leverage assumed in the transaction," Michael Levesque, Moody's senior vice president, said in a statement.
Pfizer borrowed about $22.5 billion to cover the Wyeth purchase.
However, Moody's affirmed Pfizer's Prime-1 short-term rating and said the rating outlook is "Stable."
Fitch Ratings also downgraded three of its Pfizer ratings.
New York-based Pfizer, which got to be No. 1 by gobbling up Warner-Lambert Co., Pharmacia Corp. and several smaller companies over this decade, was all but forced to do a megadeal now.
It faces a huge drop in sales when its $13 billion-a-year cholesterol fighter Lipitor gets generic competition in two years. Pfizer has no new drugs likely to generate that kind of revenue, and its research labs have produced less and less in recent years, with several drugs failing in mid- or late-stage human testing.
Pfizer officials cleverly announced the big deal the same day they reported on 2008 fourth-quarter earnings. The move took the spotlight off a 90 percent drop in quarterly income -- mainly due to an equally stunning $2.3 billion charge to end a Justice Department probe of illegal marketing -- and a shockingly low profit forecast for 2009. Pfizer also reduced its coveted dividend by half to help pay for the big deal, a blow to loyal stockholders stuck with the
lowest share price among major drugmakers.
The cash-and-stock deal gives Wyeth stockholders $50.19 per share, a 15 percent premium to Wyeth's price right before the deal was disclosed.
Wyeth common stock will stop trading at the end of the day Thursday. Each outstanding share then will be converted into a combination of $33 in cash and 0.985 of a share of Pfizer common stock, together worth approximately the $50.15 Pfizer offered for Wyeth on Jan. 26. The value is still about the same, as Pfizer's stock price Thursday was near its $17.45 close right before the deal was announced.
Wyeth, based in Madison, N.J., sells several blockbusters, including biotech drug Enbrel for rheumatoid arthritis, menopause treatments Premarin and Prempro, Centrum vitamins, Advil pain reliever and the top-selling vaccine in history, Prevnar for children's pneumococcal diseases. They will join Pfizer's impotence pill Viagra, Alzheimer's drug Aricept and pain treatments Celebrex
and Lyrica.
To satisfy U.S. and European regulators, Pfizer will have to sell about half of Wyeth's animal health business and change a Canadian distribution agreement, and the company said it will also sell its horse vaccine business.
Pfizer will mostly keep it current management.
The chief executive for the past three years, Harvard Law school graduate and former McDonald's executive Jeffrey Kindler, will stay at the helm, along with Chief Financial Officer Frank D'Amelio.
Some of Wyeth's key scientists and two of its board members will become part of Pfizer.
But Wyeth's CEO since January 2008, longtime executive Bernard Poussot, gets an enviable severance package worth $53 million, including a $24.3 million golden parachute and $18.6 million for cashing out his Wyeth holdings.
The combined company will have about $57 billion in revenue and, once job cuts are finished, roughly 110,000 workers.
