Pfizer Agrees to Buy Rival Drug Giant Pharmacia for $60 Billion
July 14, 2002
In the biggest corporate combination in more than a year, Pfizer Inc. agreed to buy Pharmacia Corp. for stock valued at $60 billion, giving what is already the world's biggest drug company full rights to one of the industry's crown jewels, the blockbuster arthritis drug Celebrex, Monday's Wall Street Journal reported.
The deal, which is expected to be announced Monday, would create an industry behemoth with over $48 billion in revenue and a research-and-development budget of more than $7 billion. The new combination would be the world's largest drug maker by far and the leading pharmaceutical company by revenue in every major market around the globe.
That any company would strike a deal amid the stock market turbulence of recent months is surprising. Corporate accounting scandals, plunging share prices and economic uncertainty have made companies reluctant to strike bold " transformational" deals, while several big mergers -- such as AOL-Time Warner -- have faced strong investor criticism. While the Pfizer-Pharmacia deal is seen as practical, it's unclear how investors will react to such a large deal in the uncertain market environment.
The deal comes amid unprecedented pressure on pharmaceutical companies, as the industry struggles with a dry spell in its research labs, fights rising competition from generics makers and wrestles with intense pressure on prices from governments and private buyers around the world. As a result, drug companies are facing slowing or declining revenue and are watching their stocks sink to their lowest level in years.
Under terms of the deal, Pharmacia will proceed with its previously announced plans to spin off its remaining 84% ownership of Monsanto Co . to its current shareholders. After the spinoff, Pharmacia shareholders will receive 1.4 shares of Pfizer stock for each share of Pharmacia, valuing Pharmacia stock at $ 45.08 per share, representing a 36% premium over Pharmacia's Friday closing price.
In addition to the blockbuster Celebrex, the transaction will join Pfizer's dominant cardiovascular franchise -- including the cholesterol drug Lipitor and the blood-pressure pill Norvasc, as well as its Zithromax antibiotic and its epilepsy medicine Neurontin -- with such popular Pharmacia drugs as Xalatan for glaucoma and the cancer drug Camptosar.
People familiar with the transaction expect minimal antitrust problems because the companies have few overlapping products and because Pfizer's global share of total pharmaceutical sales -- currently at 8% -- would rise only to about 11% if the deal is completed. However, one potential antitrust roadblock could be in the area of urinary incontinence, where Detrol, Pharmacia's blockbuster-in-the- making was poised to get competition from Pfizer's Darifenacin, which it expects to submit for Food and Drug Administration approval this year.
The Pfizer-Pharmacia deal is expected to heighten pressure for other companies to consider combinations -- including industry giants Bristol -Myers Squibb Co . and Merck & Co ., which have been hard-hit by generic competition as their flagship medicines lose patent protection.
Pfizer's move, which is largely the brainchild of Pfizer CEO Henry McKinnell, echoes its acquisition two years ago of another of its partners, Warner-Lambert, in a $115 billion deal that gave it full control over the cholesterol-lowering drug, Lipitor. In recent years, big mergers had fallen into disfavor with some industry executives, who note that companies that pursued that tack, such as GlaxoSmithKline PLC and Bristol -Myers Squibb Co ., failed to solve their problems -- particularly in research -- and appeared to be distracted by the merger process.
A Pharmacia spokesman and a Pfizer spokeswoman declined to comment.
Wall Street Journal Staff Reporters Robert Frank and Scott Hensley contributed to this report.
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