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Pfizer mum on higher bid
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November 16, 1999: 4:26 p.m. ET
Touting growth to bolster Warner bid, Pfizer to wait for court, market reaction
By Staff Writer Jamey Keaten
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NEW YORK (CNNfn) - While a legal battle rages behind the scenes, Pfizer Inc. took its hostile $75 billion offer for Warner-Lambert Co. to shareholders Tuesday, but left unanswered a question on many shareholders' lips: Will Pfizer raise its bid?
At a meeting with analysts in New York, Pfizer executives said they expect a Delaware court to decide within four to six weeks whether to heed Pfizer's request to delay Warner-Lambert's $71 billion merger with American Home Products Corp.
Pfizer escalated its legal assault on Warner-Lambert's deal Monday, filing an amended lawsuit that seeks to prevent the American Home deal until shareholders get a right to consider Pfizer's bid. In the filing, Pfizer announced it will launch a proxy battle to oust the Warner-Lambert board.
Pfizer also wants to eliminate key terms of the American Home deal that would require Warner-Lambert to pay a $2 billion breakup fee if the deal falls apart and would prevent Pfizer from using an accounting method known as "pooling" that would reduce the impact of a Warner-Lambert deal on Pfizer earnings.
But due to market factors affecting the values of those two bids, the gap has narrowed between the values of those deals, and thus the attractiveness of the Pfizer offer. Pfizer's deal offers 2.5 shares of its stock for each Warner-Lambert share; the American Home merger offers an equivalent of 1.49 American Home shares.
William Steere, Pfizer's chairman and chief executive officer, stressed that as it now stands Pfizer's bid is higher, meaning that shareholders of Warner-Lambert already may have a clear choice. But market conditions could change, he said.
"We want to see how it plays out in the court and how it plays out in the market," before Pfizer opts to raise its bid, Steere said at a news conference following the analysts meeting.
However, Pfizer's assurances to analysts weren't enough to rally its stock price Tuesday. Shares of all three companies closed lower. New York-based Pfizer (PFE) shed 1-1/8 to 33-7/8, Warner-Lambert (WLA), of Morris Plains, N.J., lost 1-7/8 to 90-7/8, and Madison, N.J.-based American Home (AHP) fell 7/8 to 55.
In its meeting, Pfizer seemed to put to rest any concerns that Wall Street had about its need to buy Warner-Lambert to bulk up its pharmaceuticals pipeline. The two companies are in a marketing agreement for the hot cholesterol drug Lipitor, which had $2.2 billion in sales last year.
For its part, Warner-Lambert threatened Monday to scrap the lucrative marketing alliance with Pfizer for the hot cholesterol drug Lipitor, which analysts said is perhaps the crown jewel at Warner-Lambert, with revenues possibly reaching $10 billion per year.
But Pfizer officials say Lipitor is only one of seven drugs that it makes or markets expected to bring in sales of at least $1 billion this year. The others are its impotence drug Viagra, the cardiovascular drug Norvasc, antidepressant Zoloft, antibiotic Zithromax, antifungal agent Diflucan and arthritis drug Celebrex.
Products in the pipeline
Outlining how the company has been among the industry leaders in income and revenue growth in the last decade, Pfizer said it has 64 new products in that pipeline and expects seven of its drugs to collect at least $1 billion in annual revenues. The company predicted annual revenue growth of 16 percent and earnings growth of 20 percent through 2002.
Dr. Henry McKinnell, Pfizer's president and chief operating officer, who is leading its takeover effort, said: "On all measures of financial performance, Pfizer/Warner-Lambert significantly outperforms Warner-Lambert with American Home Products."
"Pfizer/Warner-Lambert would have an estimated return on equity of 43 percent, return on assets of 29 percent and projected annual earnings per share growth of 24 percent, compared to Warner-Lambert-AHP's 34 percent, 21 percent and 20 percent, respectively," McKinnell added.
McKinnell also expanded the possible range of price savings Pfizer could achieve through a deal with Warner-Lambert to $1 billion to $2.6 billion per year, based on other drug industry mergers in the last decade. Pfizer previously estimated it would achieve savings of about $1.2 billion per year.
"We haven't had the opportunity for due diligence that American Home has had," he said, referring to the ability companies have to examine each other's books as they work out a merger.
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