Reference no: EM133009582

Pfizer has started its effort in the hostile takeover of Warner-Lambert at the end of 1999 after American Home Products (AHP) and Warner-Lambert announced their intention to merge. Pfizer's agreement with Warner on Lipitor is the reason Pfizer made the hostile bid for Warner. Last year, the fastest- growing portion of Pfizer's revenue came from sales of Lipitor, a cholesterol-lowering drug made by Warner-Lambert. Under the Lipitor agreement, Pfizer gets about half the profits of the drug, which is expected to have revenues of $5 billion. However, when Warner-Lambert announced that it would acquire the American Home Products Corporation, analysts say that Pfizer began to fear that it might lose its agreement on Lipitor. Many Warner-Lambert executives were not offered top management positions at the combined company, a reason Warner-Lambert tried so hard to fend off Pfizer's attack.

• Pfizer says that it plans to save $1.6 billion next year, and that some jobs will be cut, mostly in management and administrative positions. The two companies have a total of 87,000 workers, with 12,000 employees in the New York City area. Mr. de Vink, the chairman of Warner-Lambert was offered by Pfizer to pay him as a consultant for his advice after the companies combine their operations but he was worried that his ideas would clash with those of Mr. Steere, the chairman of Pfizer. With the addition of Warner-Lambert, Pfizer will add 2,500 sales representatives to its 5,000 workers now selling drugs in the United States. The combined Pfizer and Warner-Lambert will also have a research staff of 12,000, the largest in the world.
• The need to spend more on research is one reason that many drug companies are now searching for merger partners. However, the growing number of drug mergers is raising concerns in Washington. Yesterday, two ranking senators on the subcommittee that reviews antitrust matters sent a letter to the Federal Trade Commission, urging regulators to scrutinize all three drug mergers that have recently been announced. According to the senators, maintaining strong competition in the pharmaceutical industry is of crucial importance to controlling health care costs and ensuring that innovation continues to take place. However, Pfizer executives said that they were not concerned about any antitrust issues. Pfizer had agreed to exchange 2.75 of a share of its stock for each share of Warner-Lambert valued at $98.31 per share.
• The deal is costing $90.27 billion in stock. Pfizer's shareholders will own approximately 61% of the new company, and Warner-Lambert shareholders 39%. The combined company, which will be called Pfizer, will become the second-largest drug company in the world. The companies forecast that the new entity will have compounded three-year annual earnings growth of 25% and will achieve annual cost savings of $1.6 billion by 2002.
• Shares of Warner-Lambert rose $2.75 yesterday, to $97.3125, a new 52-week high, while shares of Pfizer climbed $1.25, to $37.

Problem 1: Discuss FIVE (5) synergies that Pfizer can obtain from the merger with Warner-Lambert

Problem 2: Discuss FIVE (5) concerns of the merger that should be addressed by Pfizer