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W-L to talk to Pfizer
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January 13, 2000: 5:29 p.m. ET
Board approves talks, says Pfizer bid may be better for shareholders
By Staff Writer Martha Slud
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NEW YORK (CNNfn) - Warner-Lambert Co. reversed course Thursday and agreed to open talks on Pfizer Inc.'s estimated $77.7 billion unsolicited merger bid, backing away from its planned $56.5 billion deal with American Home Products Corp.
After months of resisting Pfizer's unfriendly bid and in the wake of increasing shareholder pressure to entertain the higher offer, Warner-Lambert said that "in light of changing circumstances" its board of directors will consider the Pfizer proposal.
Warner-Lambert, maker of the lucrative cholesterol drug Lipitor and one of the world's fastest-growing drug companies, said its board concluded that Pfizer's all-stock offer may provide more value to shareholders than the American Home deal.
Since the American Home stock swap deal was announced Nov. 4 and Pfizer responded with a surprise, rival offer hours later, the gap between the competing bids has risen to approximately $20 billion, based on current stock prices, making Warner-Lambert shareholders clamor for the company to consider the richer, Pfizer bid.
The American Home deal originally was worth about $72 billion, but AHP stock has tumbled amid ongoing concerns about litigation stemming from the "fen-phen" diet pill combination, cutting the deal's value to about $56.5 billion. Pfizer's bid, originally valued at $82 billion, has slipped only modestly to about $77.7 billion.
"It has always been the board's objective to secure the best possible transaction for Warner-Lambert shareholders, and we will now pursue discussions with Pfizer to determine if a combination with them to achieve that goal is possible," Warner-Lambert CEO Lodewijk J.R. de Vink said in the statement.
Pfizer, which had initiated moves to try to dismiss Warner-Lambert's board and carry out a hostile takeover of the company, issued a quick response saying that it was pleased that Warner-Lambert was ready to negotiate. But American Home said that it stands by the Nov. 4 "merger of equals" pact with Warner and that the terms of the deal "remain in full force and effect."
"We continue to support the strategic merger of equals of Warner-Lambert and AHP under our existing merger agreement," AHP spokeswoman Sharon Prince said.
Analysts say that American Home may respond to Thursday's news by making a revised, higher bid for Warner-Lambert.
The news helped push up Warner-Lambert (WLA) stock by 5-1/16, or about 6 percent, to close at 91-7/8 on the New York Stock Exchange. Pfizer (PFE) shares rose 1-3/4 to 36-7/8 and American Home (AHP) stock gained 7/16 to 42-5/8.
'Changing circumstances'
Warner-Lambert previously has said the terms of its American Home pact forbade it from talking to Pfizer because the Pfizer offer was only a conditional bid.
Warner-Lambert spokeswoman Carol Goodrich declined to expand on the company's statement or to discuss what led the board to decide it now is able to enter talks with Pfizer.
But pharmaceutical analyst Sam Isaly, of Orbimed Advisors, said the company likely made its move because of the increasing din of angry shareholders who want the company to accept the more valuable offer. Major institutional investors such as the California Public Employees' Retirement System (Calpers), which is the largest U.S. pension fund and owner of 3.7 million Warner-Lambert shares, have pressured the company to negotiate with Pfizer.
"They listened to their shareholders - this is a shareholder-friendly transaction," Isaly said of the Pfizer bid. "We think it's a good-looking business combination."
Meanwhile, the companies were scheduled to go before the Delaware Chancery Court in a weeklong trial beginning Feb. 14. It's unclear whether that litigation now will go forward.
The court case centers on Warner-Lambert's claim that Pfizer violated the terms of their joint pact to market Warner's blockbuster cholesterol drug, Lipitor, a pact that includes a so-called "standstill pact" that restricts either company from participating in a takeover bid of the other partner. Pfizer has asked the court to rescind Warner-Lambert's deal with American Home and to keep the Lipitor marketing agreement intact.
Under the American Home deal, the two companies would create a new firm, AmericanWarner. Under the deal, American Home chairman John Stafford would become chairman of the combined firm, while de Vink, Warner-Lambert's chairman, would be its chief executive. If Pfizer buys out Warner Lambert, industry analysts say it is unlikely that top Warner executives would play as key a management role in the new firm.
For weeks, most analysts have said they believe Pfizer, the No. 2 U.S. drug company and maker of the male impotence remedy Viagra, ultimately will prevail in the takeover fight.
If Pfizer wins, it would mark the third time that American Home has failed to complete a merger. AHP has been struggling to emerge from a multibillion-dollar settlement over "fen-phen" as well as individual lawsuits over the diet pills. AHP previously tried and failed to merge with SmithKline Beecham (SBH) and Monsanto (MTC).
Isaly said that American Home is an attractive takeover target for a bigger drug company because of its weak share price and its strong pipeline of new medicines.
If Pfizer prevails, "American Home loses twice," he said. "They lose the first time because Pfizer wins Warner-Lambert, and they lose the second time because they lose their own independence, because someone else gobbles them up."
If Warner-Lambert and American Home cancel their deal, it's unclear what would happen with the $2 billion break-up fee outlined in the pact. Under the terms of the agreement, if one side opts out the other would be required to pay the hefty fee.
Both Warner-Lambert and American Home are based in New Jersey. Pfizer has headquarters in New York. 
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