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Monday, January 26, 2009

Pfizer to buy Wyeth for $68 Billion in Stock and Cash Deal

NEW YORK ( -- Pfizer announced Monday that it has signed a deal to acquire the smaller drugmaker Wyeth for $68 billion, and thousands of job cuts will follow.

New York-based Pfizer, already the world's leading drugmaker, becomes even larger following the cash-and-stock deal with Wyeth, based in Madison, N.J.

The deal values Wyeth shares at $50.19 each, a nearly 15% premium to Friday's closing price. Pfizer agreed to pay $33 in cash and 0.985 share in Pfizer stock for each Wyeth share.

Pfizer said it would cut 10% of its staff and close five of its manufacturing plants. The company totaled about 48,000 employees at the end of 2007, though job cuts have occurred since then. Pfizer recently announced that it was cutting up to 8% of its research staff, or up to 800 jobs.

Pfizer said the deal would be financed through a combination of cash, debt and stock. The company said it is borrowing $22.5 billion from a consortium of banks.

The board of directors also decided to cut Pfizer's quarterly dividend in half to 16 cents a share.

Pfizer announced that it would ramp up its focus in treatments for Alzheimer's disease, inflammation, cancer, pain and psychosis, and continue to focus on vaccines and biotechnology.

"The new company will be an industry leader in human, animal and consumer health," said Pfizer chief executive Jeffrey Kindler, in a press release. "Its geographic presence in most of the world's developed and developing countries will be unrivaled."

Pfizer also reported a 90% plunge in quarterly net profit. The company said its diluted earnings per share plummeted to 4 cents in the fourth quarter, from 40 cents the prior year.

The company blamed a $2.3 billion charge to resolve allegations from federal prosecutors that it had promoted Bextra for uses not approved by the FDA. Bextra, an anti-arthritis drug, was pulled off the market after Merck's (MRK, Fortune 500) Vioxx was withdrawn in 2005.

Pfizer also reported a slight decline in fourth-quarter revenue to $12.9 billion, from $12.3 billion the year before.

This is the first big merger since 2006, when the telecom giant AT&T (ATT) merged with BellSouth for $67 billion. After that deal, AT&T cut 10,000 jobs.

Miller Tabak analyst Les Funtleyder, author of "Healthcare Investing," said that Wyeth has a "decent pipeline" but with "nothing that immediately jumps out at me as blockbuster." Most promising, he said, is Wyeth's plan to roll out a new form of Prevnar, which combats meningitis and blood infections, with sales totaling $2.1 billion in 2008.

Pfizer's (PFE, Fortune 500) stock price slipped in pre-market trading, while Wyeth's (WYE, Fortune 500) edged up.

One of Pfizer's chief challenges is finding a replacement for the cholesterol-cutting Lipitor, the top-selling drug of all time. The drug's annual sales peaked at nearly $13 billion in 2006, but revenue will plummet when Lipitor's patent expires in 2011.