Let me disclose this right upfront: I'm not a fan of big mergers. I don't think they work for shareholders and I can't find examples to make me think differently. Pfizer (NYSE:PFE), for instance, has already merged with Warner Lambert and Pharmacia, yet the stock of Pfizer has been trading at or near multi year lows. What makes Pfizer management think another large merger, in this case Wyeth (WYE), will work? I personally don't see their logic.
Merck (NYSE:MRK), on the other hand, has only managed a few small buyouts over the last few years. With Merck stock at or near multi year lows, maybe a Schering Plough (SGP) buyout will work for shareholders, but I am taking a wait and see attitude on this deal.
What I think Pfizer and Merck need to do is what Abbott Labs (NYSE:ABT) did in December 2000: find a company with a pipeline that has a lot of potential and buy it, in this case, Knoll Pharmaceuticals. With the buyout of Knoll came the worldwide rights to Humira, a drug that would not be approved in the US for several more years, but had great potential at the time. Abbott paid 6.9 billion dollars to buy Knoll. Humira sales in 2008 were 4.5 billion. 6.9 billion paid for a drug that will probably top 10 billion in sales in one single year before it loses patent protection, of course by then.
Abbott plans on having another drug take Humira's place, ABT-874, which Abbott also got in the Knoll buyout. Not a bad deal for Abbott shareholders, who have definitely performed much better than Pfizer and Merck shareholders over the last 5 years.
Disclosure: no positions