Saturday, January 24, 2009

More on Pfizer-Wyeth

A deal now appears imminent, and the price has risen like I had hoped. Here are some of the details:

Pfizer is lumbering closer to a takeover of Wyeth and may fork over $65 billion to $70 billion to get a deal done, the WSJ reports, citing people familiar with the matter.

The purchase price is expected to be about $50 a share, nearly 30% higher than Wyeth’s stock price right before the Journal disclosed news of the talks. An agreement could be reached next week, though timing isn’t entirely clear. And the deal could always fall apart. If a merger is eventually consummated, look for Pfizer’s Jeff Kindler to stay on as CEO at the larger Pfizer, the WSJ reports.

How would Pfizer pay for the prize? About two-thirds would be cash and one-third Pfizer stock. Even in these tough times, Pfizer has lined up about $25 billion in financing from banks. The drugmaker would draw on its reserves for the rest of the cash portion.

If this ends up being the case, I'd probably sell before the deal goes through. I'm not a fan of mega mergers. There has been a lot of talk about what consolidation might mean for the industry. You'd have less competition, which typically leads to higher prices. But, there could be plenty of synergies in combining the two companies, which would make for some better products produced for less.

A lot of people will probably lose their jobs, as cuts are inevitable in a merger of this size.

The merger would probably come out to a net gain for both companies, and the market is responding as such, with shares of both companies rising on Friday. For me personally, I've looked at some of the mega-mergers in the past and the results are questionable. I've always been a bigger fan of increasing sales through organic growth and smaller acquisitions of up-and-coming companies or companies that satisfy a niche. Combining two mature companies seems to be a deal just for the sake of doing a deal.

What are your thoughts out there?

Disclosure: Long WYE

Info from WSJ's Health Blog.

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