Pfizer Inc, the No. 1 drugmaker, said that it would acquire US rival Wyeth for about $68 billion in a move to diversify its revenue base.
The world's largest drugmaker, which raised $22.5 billion in debt from a consortium of banks to finance the deal, also cut its dividend.
The deal helps Pfizer cope with a major gap in revenue in 2011, when its blockbuster Lipitor cholesterol treatment will begin to face US generic competition. Next year, Wyeth loses patent protection on its own top drug, the anti-depressant Effexor XR.
Still, the deal would help Pfizer diversify into vaccines and injectable biologic medicines by adding Wyeth's big-selling Prevnar vaccine for childhood infections and Enbrel rheumatoid arthritis treatment. Pfizer would also realize major cost savings by streamlining areas that overlap.
For each share of Wyeth, Pfizer will pay roughly $50.19 - $33 in cash and 0.985 of a share of its stock.
Based on Wyeth's 1.33 billion shares outstanding as of October 31, the deal would be valued at about $66.8 billion. Including Wyeth's stock options, the deal would be worth $68 billion, sources said.
At $50.19 per share, the deal would mark a 15% premium over Wyeth's closing stock price of $43.74 on Friday. Wyeth's stock had surged 12.6% on Friday on news of the possible deal.
The deal is expected to add to Pfizer's adjusted diluted earnings per share in the second full year after closing and to result in cost savings of $4 billion by the third year.
Pfizer typifies many large drugmakers, which have struggled to produce new blockbusters to replace those on which they lose exclusivity.
A merger of Pfizer and Wyeth could trigger a wave of consolidation in the cash-rich pharmaceutical sector as drugmakers look to diversify revenues in the face of competition from generic-drug rivals, analysts said.
“The outlook for the industry has steadily waned, (with) industry P/E multiples declining under the combined onslaught of price pressure, aggressive generic competition and low R&D productivity,” Deutsche Bank analysts said in a note.
“The result is that many leading companies face a decline in revenues and earnings next decade, as profitable products reach the end of their patented lives and are not replaced by new drugs,” the analysts said.
They said AstraZeneca could be a target, although there were also reasons a deal might not happen.
In sealing the Pfizer deal, Wyeth went ahead and ended talks to buy Dutch vaccine firm Crucell. Crucell shares plummeted 21.1% to €12.23.
The deal is subject to Pfizer's financing sources not backing out due to a material adverse change in Pfizer's financial health or due to the company's failure to maintain a certain credit rating. Pfizer and Wyeth expect the transaction to close at the end of the third quarter or during the fourth quarter 2009. (Reuters)