Pfizer / Wyeth Deal Will Be Costly No Matter What

You might think that the Pfizer (PFE)/Wyeth (WYE) deal means that things are creeping back to normal in the M&A world. But the Wall Street Journal reports that Pfizer is having to pay about 8% for the money it's borrowing, and that the funds are due back in a year. There are also very significant clauses in the deal which make it contingent on Pfizer's bond ratings, etc., and will force the company to shell out if things don't go as planned. There's a 4.5 billion dollar breakup fee, for example, which seems to be about twice the usual contingency.

Meanwhile, Reuters notes that credit default swaps on Pfizer's debt have jumped, reflecting significant uncertainty about whether the whole deal will actually go through. Pfizer's likely to be downgraded even if things go smoothly, so this is going to be expensive from every direction...

Comments

[Steve R.:]

Is this another example of a deal where management gets a bonus and the shareholders get screwed?

I can't understand why there should be a $4.5 billion dollar break-up fee. If the deal doesn't go through, to bad, no payment - but to throw away $4.5 billion dollars of shareholder equity speaks of management playing with other peoples money, not their own.

A newspaper (I can't remember which one) said that the banks where looking to get $125 Million dollars in "fees". Also why is Pfizer paying a premium for Wyeth? In theory Pfizer could have bought Wyeth share in the open-market which would "save" Pfizer from these "junk" fees.

If Pfizer has to borrow at 8%, instead of borrowing they should have just been buying back their own stock. This would have propped up the Pfizer's stock price and reduced the overall dividend payout since there would be less stock.

Jan 28 08:57 AM

[sleepless_o...:]

What about too big to fail exposure? Is this a dangerous concentration of too much of one sector in one company? How much consolidation shopudl be allowed?

Is anybody asking these questions? No one asked them as CitiGroup and Bank of America rolled up to humungous size, or when AIG was put together. Someone better be asking questions now or we will end up with a couple of drug companies that collapse under their own weight and will be too much of our drug resources to ignore.

Jan 28 09:05 AM

[User 346111:]

Management has cut the shareholders income through the dividend reduction. Shareholders should require that Kindler and the Board Members take similar cuts to their salaries and director's fees. The shareholders should demand the ouster of the Board and Kindler at the annual meeting. The only reason the merger is happening is because the poor leadership and research department can't grow the company internally. Let's can the whole lot of them.

Jan 28 09:08 AM

[Lars39:]

This reminds me of Pfizer's purchase of Pharmacia, a very questionable value for the money. Is Wyeth really worth $68 Billion? I don't see it.
Agree that the R&D group as well as top management have not added value to the Corp for years and need to go. Just take a look at a graph of PFE stock price over the last 10 years.

Jan 28 09:49 AM

[Steve R.:]

So who is leading the shareholder charge???? I sure would like to know, I've been voting against management for several years, but so far there haven't been enough votes to oust management. Seems the ability of shareholders to oust management is a myth.

On Jan 28 09:08 AM User 346111 wrote:

Shareholders should require that Kindler and the Board Members take similar cuts to their salaries and director's fees. The shareholders should demand the ouster of the Board and Kindler at the annual meeting.

Jan 28 02:06 PM

[Real Scienc...:]

The deal doesn't make sense from the Wyeth side either. A 30% premium may seem like a lot, but Wyeth shares would be back to the $50-55 range before the summer in the absence of the Pfizer deal (the acquisition will probably deflate the stock a bit). I agree with Derek; let these separate companies battle it out (especially on the Alzheimer's battlefield) and patients and shareholders will be the winners in the end. Put them together if you want to spend many hours visiting your mother in a nursing home.

Jan 28 08:42 PM

[cmdrrgh:]

I can't beleive these guys get paid the big bucks to make these kind of decisions.

Jan 28 09:01 PM

[kk1224:]

Not everyone is happy with this merger,, I for one am very scared! I know that I will get cut, the county that I work in will lose so much in taxes. How can we as shareholders agree to allow Kindler come in and take over when he's had not one innovative idea come through his company in years. Wyeth's R&D is far better than Pfizer, why because we see from the top down what GREAT leadership is about.

Jan 29 01:10 PM

[helplessobs...:]

PFE shareholders need to take physical action, set up picket lines and make life miserable for their management and board of directors. Each phone call should deliver a blistering message to those who can shut this thing down. Such actions with the general consensus that this merger is only to preserve management jobs as they integrate this monstrosity has a good chance of working. PFE needs to look at the next biotech revolution - stem cells -instead of chemical pharma which is tapped out.

Jan 29 01:51 PM