Big Pharma Alchemy: $68 Billion Pfizer-Wyeth Pact to Create Drug Monolith While Shedding 18,000 Jobs

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--It is all about the numbers. When the world's largest pharmaceutical company comes knocking on the door with $68 billion, you welcome it in. Especially when the suitor is deep-pocketed Pfizer (NYSE:PFE) (New York, New York), desperate to offset the looming losses of its top-selling anti-cholesterol drug Lipitor when it goes off patent in 2011. As one of the world's top selling medicines, the drug generated more than $12 billion for the company in 2008 across the globe. In a deal set to close later this year, Pfizer will join forces with Wyeth (NYSE:WYE) (Madison, New Jersey) through a combination of cash and shares for $68 billion. Once the deal is done, the new company that emerges will be known as -- insert drum roll -- Pfizer.

Click on the image at right to see a list of Pfizer and Wyeth's active capital and maintenance projects.

When news of the possible merger and acquisition was still at serious rumor level, Pfizer had already announced a stunning round of job cuts. The losses were part of the company's plan to cut 10% of its job force by 2011. A bit of the surprise in that announcement was the fact that about 800 researchers were targeted to lose their jobs. As a result of the merger, the company plans to up the cuts to a total of 15%, which could result in nearly 20,000 jobs lost across the globe. An additional five manufacturing plants are also expected to be closed in the purge. Almost a year ago to the day, Wyeth had announced a similar plan for a 10% job-reduction plan over the next three years that could cause the loss of 5,000 jobs. The numbers hit hard to all involved, from a personal level of the employee losing the typically high-paying position to the communities seeing the disposable income of said employees vanish. It can have a devastating ripple effect to those locales that serve as home to Big Pharma plants, their high-tech labs and administrative offices.

As a result of the merger, Pfizer will make some impressive gains in the form of Wyeth's blockbuster children's vaccine, Prevnar, the anti-depressant Effexor and rheumatoid arthritis treatment Enbrel -- sold in partnership with bio biggie Amgen (NASDAQ:AMGN) (Thousand Oaks, California). By definition, a blockbuster is considered a drug that generates more than $1 billion in annual revenue, and once the deal is done, the new Pfizer will have 17 drugs considered as such. Wyeth also brings to the table its evolving Alzheimer's treatment bapineuzumab, a drug that, upon approval, has the potential to hit $8 billion in sales over the next decade. Wyeth's biotech manufacturing plant in Ireland is also a draw with pharma's continued interest in the bio end of business. The company will also absorb the consumer products division, replacing the one Pfizer sold off for $4 billion to Johnson & Johnson (NYSE:JNJ) (New Brunswick, New Jersey) in 2006.

Asked about the involvement of banks that are in line to receive bailout money from the federal government, Pfizer CEO Jeffrey Kindler said the ability to secure financing was a result of both Pfizer and Wyeth's strong credit ratings and cash balances. "It's good to see banks doing what they're supposed to be doing," Kindler said. "It's good for the American public, and it's good for the economy." Each outstanding share of Wyeth stock will be converted into the right to receive $33 in cash and 0.98 of a share of Pfizer common stock. Based on the closing price of Pfizer stock as of January 23, the stock component is valued at $17.19 a share. The transaction will be financed through almost equal portions of cash, debt and stock. Pfizer is paying $22.5 billion in cash, and an additional $23 billion paid in equity. A group of banks, including the troubled Bank of America and Merrill Lynch, as well as Barclays and Goldman Sachs, will provide $22.5 billion in loans.

This may well be the biggest of industry M&As for the year, but it surely will not be the last. M&As have become an essential tool to the industry for growth and any number of deals are currently in the works. As reported in Industrial Info's Pharmaceutical Tracker - Online Database, the two companies currently have a combined total investment value of more than $535 million in active capital and maintenance projects in North America. In various stages of development and construction, they range in scope from Pfizer's $250 million research expansion in Chesterfield, Missouri to a $1 million maintenance program in Greenwood, South Carolina.

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