Pfizer Wastes No Time Realizing Cost Efficiencies

The largest deal among drug makers in the last year was completed today as Pfizer (PFE) officially merged with Wyeth (WYE). At the close of trading on Thursday, Wyeth was delisted from the NYSE. Pfizer has wasted no time in announcing some of its plans for what to do with its newest asset. Cutting costs will be a top priority as the company has announced closure of Wyeth operations in Pennsylvania and New Jersey. Furthermore, Pfizer will review which research sites it will want to shut down over the next 30 to 60 days. Wyeth’s headquarters in Madison, New Jersey will remain in operation.

Pfizer had estimated that about 19,000 jobs would be cut when the deal was first announced in January, and although specifics were not made available the company said that those layoffs are underway. Obviously, realizing cost efficiencies will be vital in order to make the $68 billion deal worth the expense. With its announcements today, it is clear just how quickly Pfizer plans to reduce redundancies.

In an economy with 26- year highs in unemployment, it is not happy news to hear that manufacturing sites will be closing and jobs will be lost. This is just the way it is with acquisitions, particularly those involving such industry giants as Pfizer and Wyeth.

We are reaffirming our Undervalued stance on Pfizer and have an expected price of about $22 based on the current fundamentals. The drug manufacturer currently trades well below its historically normal ranges of price-to-cash earnings and price-to-sales. Sales have begun to falter and generic competition looms, but the Wyeth acquisition was made in part to help restore the pipeline. Not to mention, Pfizer continues to have the standard of excellence in balance sheet strength, the AAA credit rating from Standard & Poors. Management is taking the steps necessary to keep the firm in this elite category, and we are of the opinion that the market is going to start to reward quality stocks more than it has been recently.

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Comments

[desicon:]

Tough work is cut out for PFE. They have to wring significant cost out of the combined company. The rate of new product introduction will be significantly low in addition to the patent expiration of block buster drugs, so the margins are going to be down, given these realities the current PE of 15. I think it should be looked like a utility company albeit a good utility company for valuation purposes.

Oct 16 03:21 PM

[Oltjbarn:]

Pfizer didn't spend a cool 68 billion to buy Wyeth without a firm plan in mind. Because the deal is so big it will take a little time to move it into fruition. It is a very good time to accumulate the stock and get the dividend while the plan goes forward. Buy it in a DRIP plan and let the dividends accumulate.

Oct 17 11:21 PM

[webbkimbra:]

This all sounds like positive thinking, let Pfizer climb out of of the depths and start the long haul to its past glory. This merger seems to be a positive route in that direction. If the stock grows then it will reward those who stayed on board thru thick and thin!

Oct 18 04:39 AM

[Living4Divi...:]

I was against the merger for the following reasons:
1.) Cost Savings are often cited as a justification for most mergers. The promised cost savings usually never materialize.
2.) Acquiring a company requires paying a premium above and beyond market price for the acquired companies stock
3.) After having tons of cash on hand, Pfizer cut its dividend to pay for the merger.

Oct 19 10:22 AM