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News
Rival bids now the norm
November 5, 1999: 4:27 p.m. ET

Three's a crowd, as with AT&T, MCI deals, but shareholders tend to win
By Staff Writer Jamey Keaten
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NEW YORK (CNNfn) - A budding tug-of-war for Warner-Lambert Co. is becoming the latest act in the ongoing drama of unsolicited bid-making that has cut across national borders and sectors in the past two years.
     The drug maker's friendly $72 billion deal with American Home Products Inc., followed in short order by a competing, unsolicited $84 billion offer from Pfizer Inc., is a by-product of a merger rush in a sector in which the new motif seems to be: "Size matters most."
     In the merger business, so it seems, the adage that two's company and three's a crowd has held up. Pfizer's competing bid is the latest and largest in a series of such crowd-forming actions, brought about by firms as diverse as AT&T, WorldCom, Phelps Dodge and Olivetti.
     If past is prologue, market experts say, the shareholders of the target company are likely to come out ahead. As in an auction, the more bidders there are, the better the price they're likely to get.
     Analysts said the drug industry is different from others because consolidation is no longer driven by a need to combat their weakness by bulking up. Now, many companies -- such as the fast-growing firms Pfizer and Warner-Lambert -- are looking to merge from a position of strength.
     A resolution of Warner-Lambert's future, if previous grappling matches are any indicator, could be long in coming. So what should individual investors do to weed through the clutter?
    
Wading in as harpoons fly

     Wading into the waters requires a willingness to face the risk of either deal falling apart -- which is what high-rolling Wall Street arbitrageurs do every day.
     "For Warner-Lambert shareholders, the danger is that Pfizer takes its marbles and goes home," said Larry Wachtel, a market strategist at Prudential Securities. "But the potential reward is that you can get [the deal] for a higher price."
     Shares of the three companies settled Friday. Warner-Lambert (WLA) added 9/16 to 90-1/16, American Home (AHP) shed 9/16 to 54-7/16 and Pfizer (PFE) fell 2-11/16 to 34-9/16.
     The stock prices of those three companies could waver with just about any new variable in the mix -- and there are many already, not least of which is a lawsuit brought by Pfizer to stop the friendly deal.
     "With Pfizer, you probably don't do anything with it," said Tom Burnett, founder of newsletter Merger Insight. "Warner-Lambert is trading at a premium to both offers; it's coming down because traders are selling." As for American Home, he said, "it wouldn't be a bad time to hold on."
     Pfizer first said it would buy Warner-Lambert on the condition that Warner-Lambert jettison the $2 billion break-up fee that's included in the terms of the American Home deal. Pfizer later hedged that, saying it wants to talk with Warner-Lambert first.
    
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In-your-face bidding isn't new

     Unsolicited bidding is hardly new. In fact, the research firm Securities Data Corp. reports there were a total of 327 competing bids worldwide back in 1995. This year, there have been only 137 so far.
     Burnett said that's partly of the result of soaring equity prices over the past few years, which have made it more costly to step in to scuttle an announced merger.
     While there haven't been as many deals, the magnitude of unsolicited offers today is greater. The last two years have been marked by a run of record-setting unsolicited bids -- culminating in the Pfizer bid for Warner-Lambert.
     Prudential's Wachtel said the common theme to those other deals is unmistakable: "The highest bid always won."
     Among those were AT&T's (T) ultimately friendly move to swipe the cable company MediaOne (UMG) from Comcast (CMCSK) and a bare-knuckles battle in the metals industry as copper giant Phelps Dodge (PD) snatched Cyprus Amax Minerals (CYM) from a merger with Asarco (AR).
     Asarco then went its own way with Grupo Mexico.
     The telecommunications industry, in rapid-fire consolidation as the Digital Age dawns, also had its run of takeover battles. In 1997 WorldCom (WCOM) stepped in to buy long-distance provider MCI for $38 billion after MCI already had agreed to a $21 billion deal with British Telecom (BT-A). GTE (GTE) also made a play for MCI, but WorldCom won.
     Even that once staid and rarefied European merger world hasn't been immune, after a trio of French banking companies slogged through an extended mud-wrestling match, two French oil powers tried to swallow each other and Deutsche Telekom (FDTE) lost a bid to buy Telecom Italia after fellow Italian Olivetti jumped in to the mix.
     As if investors were faced with a choice of taking the money or opting for what's behind the curtain, one theme in many recent bidding wars is whether shareholders want to trade their stock in one deal, taking a fixed value of shares or cash, or wait for the benefits of the other deal to play out.
     That's just what Warner-Lambert argued in its rebuff of Pfizer, insisting that over the long haul the American Home deal offers more benefits to its shareholders. But that's a tough sell when Pfizer has more money on the table right now, analysts said.
     Steven Cohen, a research director at Kellner, Dileo, expects Pfizer will win, but that American Home and Warner-Lambert "will attempt to defend their deal not as a takeover of Warner-Lambert but as a strategic merger that is designed to deliver long-term value to shareholders."Back to top

  RELATED STORIES

Warner tells Pfizer: No - Nov. 5, 1999

WorldCom wins MCI - Nov. 10, 1997

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.