Drugmaker Pfizer Buying Rival Wyeth for $68 Billion

In a move to diversify its revenue base the number one drugmaker Pfizer Inc will buy its rival Wyeth for an estimated $68 billion. Along with the acquisition, Pfizer also announced that it will be cutting its dividend.

The move comes in an effort for Pfizer to deal with what is expected to be a major revenue gap in 2011 when its big selling cholesterol drug Lipitor will begin to face pressure from generic competition. The deal will help Pfizer diversify into to vaccines and injectable biologic medicines by adding Wyeth's big-selling Prevnar vaccine for childhood infections and Enbrel rheumatoid arthritis treatment. The deal will also add to Pfizer's adjusted diluted earnings per share in the second full year after closing and result in cost savings of $4 billion by the third year (source: news.yahoo.com).

Pfizer had to raise $22.5 billion from a variety of banks in order to get the deal done and will cut the company's dividend an unspecified amount. Pfizer will pay roughly $50.19 for each share of Wyeth common stock ($33 in cash and 0.985 of a share of Pfizer stock). As of Friday's closing price of $43.74 for Wyeth common stock, the premium realized by the transaction is nearly 15 percent. Pfizer shares traded lower ahead of the stock market's open on the news (source: news.yahoo.com).

The deal between Pfizer and Wyeth could spawn many similar transactions among the cash-rich pharmaceutical industry as drugmakers look for ways to replace blockbuster drugs as they lose exclusivity. Many believe that an acquisition of another rival company will offer a way to diversify an existing company without having to come out with any new products; or drugs in the case of the pharmaceuticals (source: news.yahoo.com).

The deal is subject to Pfizer's financing sources not backing out due to a material adverse change in Pfizer's financial health and also relies on the company maintaining a certain credit rating. While both Pfizer and Wyeth officials are confident the deal will be completed, no date has been set as for the official closing of the deal. Officials on both sides feel confident the deal will get completed sometime in late Q3 (third quarter) or early Q4 (fourth quarter) of this year (source: news.yahoo.com).

Wyeth had been in talks to acquire Dutch vaccine company Crucell but ended those talks after the deal with Pfizer was reached. Share of Crucell plummeted 21.1 percent on the news (source: news.yahoo.com)

As the old saying goes, "If you can't beat them, join them." It seems Pfizer has taken it a step further and just gone ahead and "bought them" in a deal worth an estimated $68 billion. That's one sure way to rid yourself of your competition.