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Pfizer to Buy Warner-Lambert, Ending Takeover Battle
$91.5 Billion Deal Would Create 2nd-Largest Drugmaker

By Ianthe Jeanne Dugan
Washington Post Staff Writer
Tuesday, February 8, 2000; Page E01

NEW YORK, Feb. 7—Pfizer Inc., after a three-month hostile takeover battle, said today that it will buy Warner-Lambert Co. for about $91.5 billion in stock and assumed debt, creating the world's second-biggest drugmaker.

Pfizer, which has been hunting for a new drug to rival the success of its impotence pill, Viagra, will now add the wildly popular cholesterol drug Lipitor to its medicine cabinet. The New York pharmaceutical giant also will gain an enormous pile of research money, just as scientists verge on deciphering the human genetic code and usher the industry into a new gilded age.

"When we go from knowing 500 genes to 15,000 to 25,000, the opportunity for medical research is going to explode," Pfizer President Henry A. McKinnel Jr. said in an interview today. "And we will be a clear leader."

With Warner-Lambert, Pfizer will have prescription drug sales of $31 billion next year, and it projects growth of 25 percent a year. That means it will soon leapfrog the combination of Glaxo Wellcome PLC and SmithKline Beecham PLC, which will have sales of $27 billion in 2001.

"At the end of the day, you have a company with very strong marketing and sales distribution efforts virtually in every market of the world," said Steven Tighe, a senior pharmaceutical analyst at Merrill Lynch & Co., which advised Pfizer on the deal. "It means they're going to be creating more innovative medicines and will have a great means of delivery to the marketplace."

The deal marks the end of a long saga that began last year, when Warner-Lambert began negotiating a merger of equals with American Home Products Corp. With Pfizer's own stock sagging because of a dearth of new products, the company set out on an intense course to snag the smaller rival on the other side of the Hudson River in Morris Plains, N.J.

Pfizer wound up paying 40 percent more than what American Home Products was offering. And American Home Products got an unprecedented $1.8 billion breakup fee to walk away from Warner-Lambert.

"It took us three long months to wrest control," said McKinnel, who even went to court to fight for control. "It's been a very convoluted deal. And I'm glad it's over."

Pfizer will exchange 2.75 of its shares for each share of Warner-Lambert, or about $98.31 per Warner-Lambert share. The transaction is valued at just over $90 billion in stock, based on Friday's closing prices; Pfizer will also assume $1.3 billion in Warner-Lambert's long-term debt, according to Warner-Lambert.

While Warner-Lambert has about $2 billion in cash, almost all of that will be paid to American Home Products, a spokesman said.

In trading today on the New York Stock Exchange, Warner-Lambert rose $2.56 1/4, to $97.12 1/2; Pfizer rose 93 3/4 cents, to $36.68 3/4; and American Home rose $2.50, to $48.

Pfizer shareholders will own 61 percent of the new company, which will be called Pfizer Inc. It will be based in New York, and Warner-Lambert's current headquarters will become a consumer-product business.

Pfizer gets Listerine mouthwash and Trident gum--as well as Warner-Lambert's Parke-Davis Labs in Ann Arbor, Mich. But more important, it gets an unrivaled research and development budget. Next year, the companies said, they will invest $4.7 billion researching new drugs. On average, U.S. drug companies spend $1.5 billion to $3 billion annually on research, Tighe estimated.

The main catalyst for the deal was a potent drug for lowering cholesterol called Lipitor, which Warner-Lambert launched in 1996 and jointly marketed with Pfizer, which gets about half the profits. With a stellar track record and intense marketing, Lipitor has leaped since its creation in 1997 to $5 billion in sales expected this year--about half the U.S. market.

It has been rapidly grabbing market share from Merck & Co.'s anti-cholesterol drug Zocor. Created in 1991, Zocor is expected to bring in $4.88 billion revenue this year. Now, Pfizer will get all of Lipitor's profits and the fast-growing sales at Warner-Lambert.

Alan Schwartz, an analyst at Donaldson, Lufkin & Jenrette Inc., said Pfizer did not want to see control of Lipitor diminished. "It's going to be a $5 billion product," he said. "And Japan is going to add another $1 billion in sales."

In comparison, Viagra, Pfizer's major drug had sales of just over $1 billion last year. Without another Viagra in sight last year, Pfizer's stock plunged 24 percent.

To turn around its fortunes, Pfizer began on a tenacious course last September to snap up Warner-Lambert after it heard rumors about American Home Products. "We didn't realize that a successful, fast-growing company would conclude they needed a merger partner. So we sent them a note saying that we would like to talk to them about a deal."

William C. Steere Jr., Pfizer's current chairman and chief executive, will lead the combined business.

Warner-Lambert's chairman and chief executive, Lodewijk J.R. de Vink, will step aside once the merger is completed this summer. De Vink, who at one point sought to entice consumer products giant Procter & Gamble Co. to step into the bidding war, would have been the top executive of the combined American Home-Warner-Lambert.

Staff writer Kathleen Day in Washington contributed to this report.

© Copyright 2000 The Washington Post Company

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