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P&G steps into drug fray
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January 19, 2000: 7:27 p.m. ET
Sources confirm consumer goods giant talked to Warner-Lambert, AHP about a deal
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NEW YORK (CNNfn) - Warner-Lambert Co., locked in a staring match over the price of an unsolicited buyout bid from rival Pfizer Inc., has held talks with consumer goods giant Procter & Gamble Co. about a merger, two people familiar with the matter confirmed Wednesday.
The talks, first reported by the Wall Street Journal Wednesday, focus on P&G possibly buying Warner-Lambert and even its preferred merger partner American Home Products (AHP), the sources said.
A deal is far from certain; P&G will think long and hard about such a costly buyout and its potential to dilute earnings. Nevertheless, the consumer goods giant has been looking for a way to bulk up its drug business, which now consists of mainly over-the-counter products such as Crest toothpaste.
Regardless of what, if anything, happens with P&G, talking with the consumer-products giant puts Warner-Lambert in a better negotiating position with Pfizer.
It is unclear whether the Warner-Lambert talks with P&G are continuing. Officials from Warner-Lambert, P&G and American Home Products declined comment. A spokesman from Pfizer could not be reached for comment.
P&G could release a statement about the conversations with AHP and Warner-Lambert as early as Thursday, people familiar with the matter said.
One analyst said that while a pairing of P&G and Warner-Lambert would seem to fit the strategic goals of each company, Pfizer is likely to win in the end - but at a higher price.
"Warner-Lambert probably did initiate the conversations," said Len Yaffe, an analyst at Bank of America Securities, who has a "strong buy" rating on Warner-Lambert shares and a "buy" on Pfizer's. "We believe that to acquire Warner-Lambert, [Pfizer] will have to pay more than $100 per share."
The stock rapidly approached that level on Wednesday. Warner-Lambert rose 4-13/16 to 94-13/16, American Home added 1-13/16 to 46, while P&G fell 1-9/16 to 115-3/8. Pfizer rose 1/2 to 37.
"Warner-Lambert is trying to maximize the price paid for the company, " said Yaffe. "They think that they are entitled to a higher price, and this facilitates that," he added, referring to the P&G talks.
Last November, American Home and Warner-Lambert announced plans to merge in a $72.4 billion deal. The same day, Pfizer stepped forward with a rival $82 billion offer for Warner-Lambert. The value of the offers has fluctuated as the stocks have.
Despite language in their deal that makes the merger between American Home and Warner-Lambert hard to break, the market has up to now clearly preferred the higher Pfizer bid. Sensing that, Warner-Lambert agreed to open talks with Pfizer.
P&G, one of the nation's largest companies and a component of the Dow Jones industrial average, has been selective on the buyout trail, even though Chairman and CEO Dirk Jager has hoped to shake up its staid corporate culture.
P&G (PG) is the world's largest consumer-goods maker, with a broad products slate, including Tide detergent, Pampers diapers and Folgers coffee. Its $2 billion buy of pet-food maker Iams last August is the largest in P&G's history.
P&G has set a target to reach $70 billion in annual sales by 2005 - from roughly $38 billion a year now.
Growth prospects and profit margins have generally been higher in the drug industry than for consumer goods makers such as P&G.
With sales of $38.1 billion in its latest fiscal year ended last summer, P&G dwarfs a combination of Warner-Lambert and AHP. AHP had sales of $13.5 billion in fiscal year 1998; Warner-Lambert, which reported on its earnings Wednesday, had 1999 sales of $12.9 billion.
The Journal said Warner-Lambert and AHP reportedly approached drug maker Bristol-Myers Squibb (BMY) about a deal, but said Bristol-Myers was not interested in a three-way deal.
A report in the Financial Times suggested that Switzerland's Novartis had expressed interest in a deal with AHP, though the Basel-based company declined to comment. 
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