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Pfizer in Warner proxy war
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November 15, 1999: 9:19 p.m. ET
Pfizer sues, saying Warner board failed duty, as details on hot Lipitor pact fly
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NEW YORK (CNNfn) - Pfizer Inc. launched a proxy war late Monday to oust the Warner-Lambert Co. board, part of a move to take control of Warner-Lambert and keep it from merging with friendly suitor American Home Products Corp.
Pfizer, of New York, amended late Monday a Nov. 4 lawsuit in Delaware Chancery Court, requesting that the court force Warner-Lambert to consider its $75 billion offer before it proceeds with the $71 billion deal with American Home.
In its filing, Pfizer also said it would begin a proxy battle to unseat the current Warner-Lambert board, reduce the size of the board to seven directors and elect an "independent" slate. At least in theory, this "new" board would be open to Pfizer's unsolicited offer.
The 26-count filing, citing a host of precedent cases, said Warner-Lambert's board breached its fiduciary duty by neglecting to properly entertain the Pfizer bid. The Warner-Lambert deal with American Home, a so-called merger of equals, would offer no premium to Warner-Lambert shares.
Pfizer also claims Warner-Lambert lied about the progress of its American Home talks, and charges Warner-Lambert executives agreed to the American Home deal to protect their jobs.
"The Warner defendants' motivation in engaging in this unprecedented and unlawful conduct is crystal clear: by merging with [American Home] instead of Pfizer, the Warner directors and officers have sought to entrench themselves and preserve the benefits of their positions," the filing said.
Referring to the Pfizer filing, Warner-Lambert spokeswoman Carol Goodrich said late Monday: "That is Pfizer's prerogative. We are still proceeding with the American Home merger."
A turf war about Lipitor
This latest legal salvo comes just hours after Warner-Lambert said it's considering scrapping a lucrative 10-year marketing deal with Pfizer for its blockbuster cholesterol drug Lipitor, one of the world's top-selling drugs.
The companies inked the accord on Lipitor, a drug for people with high cholesterol, in 1996. Lipitor sales have soared for two major reasons, analysts said: the quality of the product, and the strong marketing apparatus that Pfizer, the nation's second-largest pharmaceuticals company, brought to the table.
But now Lipitor is up and rolling and could eventually reach sales of $10 billion annually, Warner-Lambert may think it can go it alone -- with American Home on its side, analysts said.
Late Monday, Warner-Lambert released key details of that Lipitor pact, which the two sides had previously kept confidential.
According to a news release on the pact, Pfizer last year received a 48 percent cut of the $2.2 billion in revenue the drug generated last year - or about $1.1 billion.
Because sales of Lipitor far exceeded the companies' expectations -- and are likely to continue to do so - Pfizer is entitled to a 48 percent cut of revenues for at least the next three years. After that, Pfizer's portion would decline to a minimum of 31 percent.
Also as part of the agreement, Goodrich said, if the marketing pact is broken off, Pfizer would be responsible for paying 50 percent of product expenses, even though its sales force would stop marketing Lipitor.
However, in the event of a break-up, Warner-Lambert would also pay Pfizer 75 percent of the amount that it would have collected if the alliance were still in effect.
Warner-Lambert threatened just such a break-up earlier Monday, in the form of a letter to Pfizer Chairman William Steere.
Industry analysts said that Warner-Lambert's willingness to jettison the marketing pact may be part of an effort to highlight Pfizer's dependence on Lipitor.
That in turn could hurt Pfizer's stock price and thus dilute the value of its stock-based offer for Warner-Lambert. Pfizer is offering 2.5 shares of stock for each Warner-Lambert share.
One observer said Warner-Lambert executives, through their announcement, were hoping to give Pfizer investors and analysts something to think about at that meeting New York Tuesday.
"They want Pfizer's stock to be weak," said one arbitrageur. "The best thing to happen to Warner-Lambert from a defensive point is that Pfizer's stock goes down," he said.
For its part, Pfizer was preparing an analysts meeting in New York Tuesday to highlight how its drug pipeline is healthy and point out that it has several other cash-creating drugs in its portfolio.
Warner-Lambert accused Pfizer of inappropriately using information about the Lipitor deal to make its offer look more attractive.
"It is clear that Pfizer is both using to its own advantage and failing to disclose, to the detriment of Warner-Lambert's and Pfizer's shareholders, information about the Lipitor arrangements which is of unique importance to both sets of shareholders in assessing the current situation," Warner Chairman Lodewijk J.R. de Vink said.
Pfizer responded by saying there has been no breach in its agreement with Warner-Lambert: "Any such suggestion by Warner-Lambert to the contrary is simply inappropriate and wrong."
Warner-Lambert: Just "posturing"?
One analyst said Warner-Lambert's examination of scrapping the deal amounts to "posturing" because Lipitor is so important for the companies that they don't want to jeopardize its success in any way. "I think that's just legal dancing," said Ken Nover, an pharmaceutical analyst at A.G. Edwards in St. Louis. "They don't want to have anything that could hurt Lipitor -- it's too important."
Last week, Warner-Lambert's de Vink said he hoped the two sides could maintain their marketing pact even amid the uncomfortable takeover situation.
Nover outlined other reasons why he thinks that Warner-Lambert's move may be an empty threat. The terms of any break-up would likely allow Pfizer to retain some profit from Lipitor, even if it isn't participating in the marketing.
More importantly, Nover said Warner-Lambert won't be able to give Lipitor the marketing attention it warrants if the merger with American Home goes through and the two companies go through an integration process.
Still, in its statement Monday, Morris Plains, N.J.-based Warner-Lambert said terminating the accord could offer "significant enhancement to shareholder value." 
-- from staff and wire reports
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