The Pfizer-Wyeth merger isn't mainly about cost-cutting, says Pfizer's Kindler. Nevertheless, he intends to eliminate about 20,000 jobs
Pfizer's (PFE) announcement on Jan. 26 that it will buy Wyeth (WYE) for $68 billion in cash and stock called up visions of past Pfizer acquisitions for many pharmaceutical executives—and some of those visions resembled nightmares. But Pfizer CEO Jeffrey Kindler, who took the top job in 2006, insists the Wyeth deal is different from its earlier mega-mergers with Warner-Lambert in 2000 and Pharmacia in 2003.
Kindler told a news conference that the Wyeth merger is not about "a single product or cost-cutting," as with past deals. Instead, "it's about creating a broad, diversified portfolio."
Nevertheless, cost-cutting there will be. Pfizer expects to achieve about $4 billion in "synergies" by 2012, enabling it to reduce the combined workforce of the two companies by 15%, or some 20,000 jobs. As part of those synergies, Pfizer announced Monday that it will eliminate 8,000 jobs, 10% of its workforce. It is closing five of its 46 manufacturing plants.
The company went through similar rounds of cost-cutting when it acquired Warner-Lambert in a deal worth $90 billion, and when it bought Pharmacia for $60 billion. Those acquisitions sparked criticism in the pharmaceutical industry because of the brutal staff cutbacks and—at least in the case of Pharmacia—because there was no big performance gain. Pfizer acquired Warner-Lambert mainly for the cholesterol-lowering drug Lipitor, which went on to become the world's best-selling drug. The company targeted Pharmacia primarily to acquire Celebrex, a top-selling pain pill. But Celebrex was in the same drug class as Merck's (MRK) troubled Vioxx, and when that drug was pulled from the market in 2004 for safety reasons, Celebrex sales fell off a cliff. Pfizer's stock has slid more than 50% since the Warner-Lambert deal.
Protecting Morale and Productivity
The two earlier mergers were done on former CEO Hank McKinnell's watch. Kindler said the company "has obviously learned a lot from our prior acquisitions" and believes it can do layoffs this time without harming morale and productivity. He emphasized that the combined company will have a strong edge in research and science, although Pfizer announced in early December that it will lay off 800 of its own scientists.
The deal was generally applauded on Wall Street because Pfizer desperately needs a diversified portfolio of new drugs and has been unable to create enough of them on its own. Currently 25% of its revenues come from Lipitor, but the drug is due to lose patent protection in November 2011. In fact, other looming patent expirations mean Pfizer could lose 70% of its 2007 revenues by 2015, and there are no potential blockbusters in its near-term development pipeline to make up the difference.
Wyeth has been struggling with similar problems. Its two biggest drugs, Effexor for depression and Protonix for heartburn, are coming off patent in 2010 and 2011, respectively. Kindler says Pfizer doesn't want Wyeth for those blockbusters but for its strong position in vaccines, biologic drugs, veterinary medicine, and consumer products—areas where Pfizer has little presence (it sold its consumer-products business to Johnson & Johnson (JNJ) for $16.6 billion in 2006). Kindler also praised Wyeth's promising development portfolio of Alzheimer's disease drugs, any one of which could become a blockbuster upon reaching the market.
Together, the two companies will have 17 different prescription drugs on the market this year that each bring in $1 billion a year or more. No one product, however, will account for more than 10% of the combined company's revenue in 2012, Pfizer said. That distribution softens the damage from individual patent expirations.
Staying No. 1
The combined operation, Kindler said, will produce a company "with a distinct blend of diversification, flexibility, and scale." It will also ensure Pfizer's position as the world's largest pharmaceutical company. Still, says Datamonitor analyst Simon King, the deal "will not resolve the company's negative pharma sales outlook." He estimates that prescription drug sales for the combined company exceeded $70 billion in 2008, and will drop to $54 billion in 2013.
Kindler warned that the merger will also result in flat earnings for the next three years. And, to help finance the deal, Pfizer cut its quarterly dividend by half, to 16¢ a share. The deal is expected to close at the end of the third quarter this year. Pfizer is paying $50.19 a share for Wyeth, a premium of about 30% over the price of Wyeth's stock before news of the merger leaked out on Jan 23. Wyeth's stock closed Friday at 43.74 a share, up 4.91, while Pfizer rose 24¢, to 17.45.
Pfizer will pay for the acquisition with $22.5 billion in cash, $23 billion in stock, and $22.5 billion in debt raised from five banks: Bank of America Merrill Lynch (BAC), Barclays (BCS), Citigroup (C), Goldman Sachs (GS), and JPMorgan Chase (JPM).
The merged company will still be named Pfizer, and Wyeth CEO Bernard Poussot, who took over the company one year ago, said only that he would stay on "through the closing." The boards of both companies have approved the merger, but Wyeth's shareholders must still vote on the deal.
There is already one loser from this merger. Just two weeks ago, Dutch vaccine maker Crucell (CRXL) announced that Wyeth was in preliminary discussions to buy it for $1.4 billion. On Monday it announced the deal has been canceled.
From BusinessWeek
Friday, April 17, 2009
Thursday, April 2, 2009
G-20: $1 Trillion and a Plan
The IMF is the big winner at the summit, getting a huge cash infusion and a key role in a new world financial system designed to closely monitor risk
By Kerry Capell and Stanley Reed
The Group of 20 Summit of the world's top leaders, held Apr. 2 at a windowless exhibition hall in London's eastside docklands, did not achieve everything its organizers originally hoped for, but it was not without substance. Clearly, the most important accomplishment is the trebling of the resources available to the International Monetary Fund to $750 billion. That will make it easier to fight financial fires that may break out in the next few months, especially in emerging economies. All told, some $1.1 trillion in new money will come on tap for the IMF, the Worl Bank, and to support trade finance. "That's about the size the world may need," said the IMF's director, Dominique Strauss-Kahn, who noted with satisfaction that "the IMF is back."
But perhaps more important, the G-20 leaders agreed on a set of principles that may mark the beginning of a new global financial architecture that will exercise more control over hedge funds, derivatives, and even traders' bonuses, while at the same time turning the screws on tax havens. This G-20 meeting by definition also represented an effort to broaden participation in global financial leadership beyond just the U.S., Western Europe, and Japan to include big emerging market economies such as China, India, Russia, Brazil, and Saudi Arabia. "This kind of cooperation really is historic," U.S. President Barack Obama told reporters at the end of the conference.
World stock markets were cheered by the leaders' ability to reach a harmonious conclusion. There had been some doubt the day before, when French President Nicolas Sarkozy and German Chancellor Angela Merkel held their own press conference demanding a regulatory crackdown, in what seemed like an effort to counter the impact of the apparent lovefest between Obama and Britain's Prime Minister Gordon Brown. Continuing the recent bull run, London's FTSE closed up 4.28% on Apr. 2, while in New York the S&P 500 was up more than 3.4% in afternoon trading.
Regulatory Reach
Indeed, Sarkozy and Merkel seemed to have largely got their way in terms of the tough language of the final communiqué—though toughening up financial regulation is hardly controversial in the current political climate. "The conclusions are more than we could have hoped for," a delighted Sarkozy told reporters at the end of the summit.
The final communiqué says that regulation and oversight are to be extended to all systemically important "financial institutions, instruments, and markets." Large hedge funds also will be regulated for the first time, though how many funds will fall into the net and what sort of oversight they will have isn't spelled out. "The big unknown is what they mean by regulation," says Simon Gleeson, a partner at the law firm Clifford Chance in London.
In the coming weeks, lobbying groups will maneuver to shape whatever regulation is on the way. "Regulatory reform should strengthen the overall financial system without impeding hedge funds' ability to contribute to the global economic recovery that the leaders of the G-20 hope to advance," says Richard H. Baker, CEO of the Washington-based Managed Funds Assn., which represents hedge funds.
Pressure on Tax Havens
Tax havens—which have buckled under pressure in the last few weeks—continued to draw fire. The G-20 leaders threatened "sanctions" against "non-cooperative jurisdictions." Again, what exactly this will mean in practice is hard to say, but tax havens such as Andorra, Liechtenstein, and even Switzerland are clearly on the defensive. "The moral pressure that has built up in the last few weeks has had an effect," says Andrew Watt, managing director of tax disputes and investigations at London tax advisers Alvarez & Marsal.
With governments unable to agree on a new big bang of fiscal stimulus, beefing up the IMF and regulation were the logical directions to turn. U.S. Treasury Secretary Timothy Geithner's experience with the IMF also may have helped boost the agency's fortunes.
At any rate, the IMF is clearly the big winner from the G-20. It will not only get more money, but it also will have a much easier time deploying it. Until now, countries that turned to the IMF usually were required to agree to tough and painful austerity regimes. Now, applicants considered basically stable will be able to borrow large quantities of money through a new facility called a Flexible Credit Line to stave off possible financial emergencies. Mexico has already requested such an arrangement, and its decision has eased concerns that countries would be wary of such borrowing because of the possible stigma attached. "Once you get the first client, the second is easier," says Kaan Nazli, an emerging markets analyst at consultants Medley Global Advisors.
A Boost for the IMF
The IMF also will become the pillar in a new world financial system designed to more closely monitor risk, as well as to give the so-called BRIC countries (Brazil, Russia, India, and China) and other big players a role at the table. "The highlight of the G-20 meeting is the agreement to boost both the resources and structure of the IMF. It allows for more effective governance of the world economy," says Jim O'Neill, chief economist of Goldman Sachs (GS) in London.
The IMF, along with a new Financial Stability Board headed by Italian central bank head Mario Draghi, will be given the role of providing "early warning of macroeconomic and financial risks and the actions needed to address them." The IMF and the World Bank also may be revamped to make them less the creatures of the U.S. and Western Europe. For instance, the chiefs of these institutions now will be appointed on merit, according the communiqué, perhaps meaning that they will no longer come under the political patronage of Washington and Western Europe. "Emerging markets and developing countries will be given a greater voice and representation," said Britain's Prime Minister Brown, the conference's host.
All of this sounds good, but whether it will actually happen is another question. These decisions only amount to a small additional boost at best for the troubled world economy and will do little to clean up the mess on the balance sheets of the world's big banks. "The experience of the IMF is that you never recover until you complete the cleansing the financial sector," said Strauss-Kahn. By that measure, recovery is still a long way off.
From BusinessWeek
By Kerry Capell and Stanley Reed
The Group of 20 Summit of the world's top leaders, held Apr. 2 at a windowless exhibition hall in London's eastside docklands, did not achieve everything its organizers originally hoped for, but it was not without substance. Clearly, the most important accomplishment is the trebling of the resources available to the International Monetary Fund to $750 billion. That will make it easier to fight financial fires that may break out in the next few months, especially in emerging economies. All told, some $1.1 trillion in new money will come on tap for the IMF, the Worl Bank, and to support trade finance. "That's about the size the world may need," said the IMF's director, Dominique Strauss-Kahn, who noted with satisfaction that "the IMF is back."
But perhaps more important, the G-20 leaders agreed on a set of principles that may mark the beginning of a new global financial architecture that will exercise more control over hedge funds, derivatives, and even traders' bonuses, while at the same time turning the screws on tax havens. This G-20 meeting by definition also represented an effort to broaden participation in global financial leadership beyond just the U.S., Western Europe, and Japan to include big emerging market economies such as China, India, Russia, Brazil, and Saudi Arabia. "This kind of cooperation really is historic," U.S. President Barack Obama told reporters at the end of the conference.
World stock markets were cheered by the leaders' ability to reach a harmonious conclusion. There had been some doubt the day before, when French President Nicolas Sarkozy and German Chancellor Angela Merkel held their own press conference demanding a regulatory crackdown, in what seemed like an effort to counter the impact of the apparent lovefest between Obama and Britain's Prime Minister Gordon Brown. Continuing the recent bull run, London's FTSE closed up 4.28% on Apr. 2, while in New York the S&P 500 was up more than 3.4% in afternoon trading.
Regulatory Reach
Indeed, Sarkozy and Merkel seemed to have largely got their way in terms of the tough language of the final communiqué—though toughening up financial regulation is hardly controversial in the current political climate. "The conclusions are more than we could have hoped for," a delighted Sarkozy told reporters at the end of the summit.
The final communiqué says that regulation and oversight are to be extended to all systemically important "financial institutions, instruments, and markets." Large hedge funds also will be regulated for the first time, though how many funds will fall into the net and what sort of oversight they will have isn't spelled out. "The big unknown is what they mean by regulation," says Simon Gleeson, a partner at the law firm Clifford Chance in London.
In the coming weeks, lobbying groups will maneuver to shape whatever regulation is on the way. "Regulatory reform should strengthen the overall financial system without impeding hedge funds' ability to contribute to the global economic recovery that the leaders of the G-20 hope to advance," says Richard H. Baker, CEO of the Washington-based Managed Funds Assn., which represents hedge funds.
Pressure on Tax Havens
Tax havens—which have buckled under pressure in the last few weeks—continued to draw fire. The G-20 leaders threatened "sanctions" against "non-cooperative jurisdictions." Again, what exactly this will mean in practice is hard to say, but tax havens such as Andorra, Liechtenstein, and even Switzerland are clearly on the defensive. "The moral pressure that has built up in the last few weeks has had an effect," says Andrew Watt, managing director of tax disputes and investigations at London tax advisers Alvarez & Marsal.
With governments unable to agree on a new big bang of fiscal stimulus, beefing up the IMF and regulation were the logical directions to turn. U.S. Treasury Secretary Timothy Geithner's experience with the IMF also may have helped boost the agency's fortunes.
At any rate, the IMF is clearly the big winner from the G-20. It will not only get more money, but it also will have a much easier time deploying it. Until now, countries that turned to the IMF usually were required to agree to tough and painful austerity regimes. Now, applicants considered basically stable will be able to borrow large quantities of money through a new facility called a Flexible Credit Line to stave off possible financial emergencies. Mexico has already requested such an arrangement, and its decision has eased concerns that countries would be wary of such borrowing because of the possible stigma attached. "Once you get the first client, the second is easier," says Kaan Nazli, an emerging markets analyst at consultants Medley Global Advisors.
A Boost for the IMF
The IMF also will become the pillar in a new world financial system designed to more closely monitor risk, as well as to give the so-called BRIC countries (Brazil, Russia, India, and China) and other big players a role at the table. "The highlight of the G-20 meeting is the agreement to boost both the resources and structure of the IMF. It allows for more effective governance of the world economy," says Jim O'Neill, chief economist of Goldman Sachs (GS) in London.
The IMF, along with a new Financial Stability Board headed by Italian central bank head Mario Draghi, will be given the role of providing "early warning of macroeconomic and financial risks and the actions needed to address them." The IMF and the World Bank also may be revamped to make them less the creatures of the U.S. and Western Europe. For instance, the chiefs of these institutions now will be appointed on merit, according the communiqué, perhaps meaning that they will no longer come under the political patronage of Washington and Western Europe. "Emerging markets and developing countries will be given a greater voice and representation," said Britain's Prime Minister Brown, the conference's host.
All of this sounds good, but whether it will actually happen is another question. These decisions only amount to a small additional boost at best for the troubled world economy and will do little to clean up the mess on the balance sheets of the world's big banks. "The experience of the IMF is that you never recover until you complete the cleansing the financial sector," said Strauss-Kahn. By that measure, recovery is still a long way off.
From BusinessWeek
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