Monday, September 1, 2014
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Proxy tells how Pfizer landed Wyeth

The two CEOs first met a year ago today, but the $68 billion deal wasn't struck until January. Wyeth shareholders will vote on it July 20.

Proxy tells how Pfizer landed Wyeth

In 2008, Pfizer Inc. was hunting for a big acquisition and targeted Wyeth.

But after meeting with Pfizer’s CEO one year ago today, Wyeth’s Bernard Poussot did not exactly embrace the idea of combining with the world’s biggest drug company.

How do I know? Those details and more are contained in a document filed with the Securities and Exchange Commission yesterday about Pfizer’s $68 billion acquisition of Wyeth, which employs 4,700 in our area.

Wyeth shareholders will gather at the Hyatt in Morristown, N.J., on July 20 to vote on Pfizer’s offer. If they approve it (and there’s no reason to suspect they won’t), Wyeth shareholders will get $33 in cash and 0.985 of a share of Pfizer common stock for every share of Wyeth they own.

As the proxy statement makes clear, that price is lower than Pfizer’s first offer for Wyeth. But that’s what a global financial crisis will do sometimes. You could also read it as the price of Wyeth’s playing hard to get.

What follows is my summary of the proxy’s blow-by-blow account of how this mega-merger occurred.

On June 26, after conferring with his board of directors, Poussot called Pfizer CEO Jeffrey Kindler to say that Wyeth wanted to remain independent and wasn’t interested in talking any further about a deal.

But in the high-stakes mergers and acquisitions game, “no” doesn’t usually mean “no.”

Pfizer huddled with its financial advisers, Goldman Sachs and Merrill Lynch, and conjured up a cash-and-stock offer for Wyeth that was worth $53 per share - $34.50 in cash and $18.50 in Pfizer stock. On Sept. 9, Kindler met with Poussot again and made his proposal.

A week later, Poussot, who’d been CEO of Wyeth for less than a year, turned down the offer, saying that it undervalued his company. But Kindler persisted, and asked to meet again on Oct. 14.

Note the timing of the meetings. On Sept. 15, Lehman Bros. failed, and waves of panic rocked world markets. The S&P 500 index fell 18.5 percent between Sept. 9 and Oct. 14. Wyeth shares sank 17.8 percent to $33.50.

Suddenly, $53 doesn’t look so bad if you’re Wyeth, but a little rich if you’re Pfizer.

So Pfizer backtracks, saying recent events made its Sept. 9 offer not in its own best interests. How about $46? Wyeth says “no” again.

The value of something is generally what someone is willing to pay for it. Faced with an offer now lower than the first, Wyeth now ponders whether another company might be willing to buy it, and asks its own advisers, Morgan Stanley and Evercore Group, for guidance.

However, a credit crisis makes it difficult to raise mountains of debt, unless you have the balance sheet of Pfizer. Few private-equity buyers were in a position to stir the pot. And given Pfizer’s position at the top of the pharmaceutical industry, how many strategic buyers could outduel it?

By mid-December, “Company X” calls on Wyeth with an offer that might be in the mid-$40s. The proxy statement doesn’t identify the drug company that makes the offer, but it drops the idea by Christmas. Wyeth now realizes that no one will trump Pfizer’s offer.

After Pfizer sweetens its deal to $47.50, Wyeth begins to negotiate the best price and terms it can get. On Jan. 25, seven months after the whole dance began, Wyeth agrees to be bought for $50.33 per share.

Mike Armstrong Inquirer Columnist
About this blog
Mike Armstrong blogs about Philadelphia corporations and business-related topics. Contact him at 215-854-2980. Reach Mike at marmstrong@phillynews.com.

Mike Armstrong Inquirer Columnist
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