Article: For Pfizer, a Big Deal and a Test

By DUFF WILSON | JAN. 26, 2009

After announcing the $68 billion megamerger with Wyeth on Monday

morning, Pfizers chief executive, Jeffrey B. Kindler, did not have much time to
celebrate.
There was too much gloomy news to deal with.
The companies combined work force of 128,000 will shed 19,000 jobs. Pfizer will
slash its stock dividend in half. And Pfizer is taking a $2.3 billion charge to settle a
federal investigation over illegal off-label promotion of its former painkiller, Bextra.
Investors celebrated Mr. Kindlers big day by sending Pfizers stock down more than
10 percent.
And yet, for Mr. Kindler, the Wyeth deal promises a big payoff. The combined
company would be the fourth largest in the United States by market value based on
Mondays stock prices, which valued Pfizer at $105 billion and Wyeth at $57 billion.
Only Exxon, Wal-Mart and Procter & Gamble would be larger than Pfizer.
And it gained control of a range of biotech drugs, vaccines, consumer products and
research opportunities to try to fill the gaps in its own product pipeline.
This is not about a single product, Mr. Kindler, 53, said at the news conference at
Pfizer headquarters in Manhattan on Monday morning where the deal was formally
announced. It is about creating a broad, diversified portfolio of businesses, ones in
which the people that are great at science can do what they do best and the people
that are great at providing access to customers can do what they do best. And it is
just such a perfect fit.
His counterpart, Bernard J. Poussot, 56, the Wyeth chairman, who appeared beside
Mr. Kindler, also termed it a perfect fit. But it will be Mr. Kindlers job to make it
work. He will be chairman of the merged companies, which will be known as Pfizer,
while Mr. Poussot is expected to depart if the merger is completed as planned this
year.
In many ways, Mr. Kindler, the Harvard-trained lawyer who has led Pfizer since July
2006, had spent the last two years preparing for a big deal. He has already cut $2.8
billion in costs and 15,000 jobs. He has turned research away from the
cardiovascular medicines that helped make Pfizer a giant but whose fading glory is
embodied in the $13 billion-a-year cholesterol drug, Lipitor, which will lose its United
States patent in 2011.

Now, if the deal is completed, Pfizer, which had sales of $48 billion in 2007, is
looking forward to absorbing Wyeth, which is based in Morristown, N.J.
As many big mainline pharmaceuticals companies face their own patent problems
and the prospect of cheap generic competitors to their best-selling drugs, the Wyeth
deal will help Pfizer smooth a potential patent cliff into a mere bump in the road,
says Barbara Ryan, a Deutsche Bank analyst. A predicted 30 percent drop in
revenue in four years will be only 10 percent at worst, she said.
This just has to happen in this industry, Ms. Ryan said in an interview. As a scale
player, Pfizer can generate dramatically more earnings out of Wyeth than Wyeth
can alone.
Mr. Kindler said the Wyeth purchase was different. We have obviously learned a lot
from our prior acquisitions, he said, conceding they had hurt morale and hurt
productivity.
To make the Wyeth deal work, Mr. Kindler promised to cut $4 billion in combined
spending by 2012 and to slash 15 percent of the companies combined work force.
But he said he would do so thoughtfully and being very careful to protect the core
asset that makes both of these companies successful.
Pfizer also said Monday that it would cut its dividend in half, to 16 cents a share,
partly to shore up credit ratings, as the company borrows $22.5 billion to help
finance the deal from five banks four of which recently received federal bailout
money.
Its good to see banks doing what banks are supposed to be doing, Mr. Kindler
said. I think it is really good for America to support a competitive, strong, healthy,
biopharmaceutical industry.
David Moskowitz, an analyst with Caris & Company, praised the deal for its
biotechnology drugs and vaccines from Wyeth and the cost-cutting potential of
combined operations. In a note to investors Monday, he predicted an exciting year
for pharma mergers and acquisitions, with Schering-Plough and Bristol-Myers
Squibb being the most likely takeover targets.
Timothy D. Anderson, an analyst for Sanford C. Bernstein, said he expected costcutting to be closer to $6 billion. The next big pharma merger is likely to see a level
of cost-cutting not seen before, he wrote Monday to investors.
Certainly, Wyeth and Pfizer employees were bracing themselves for deep cuts.
Magid Abou-Gharbia, director of the Center for Drug Discovery Research at Temple
University, who recently left Wyeth after 26 years as a scientist and manager, said
he has been receiving calls from anxious Wyeth scientists.
Im trying to be a calming factor, Mr. Abou-Gharbia said in a telephone interview
Monday. Remind them that I went through three mergers at Wyeth, and after each
one, the organization emerged stronger.

As investors digested Pfizers news, the stock fell 10.3 percent to $15.65 a share
Monday. Wyeth held steady, down 0.8 percent to $43.39 after rising 12.6 percent
Friday on the takeover rumor.
Mr. Kindler defended the dividend cut, saying the Wyeth purchase gave clarity to
future earnings.

Source: http://www.nytimes.com/2009/01/27/business/27chief.html