Pfizer’s bid for Wyeth makes sense; but it suffers from the fundamental problem with M&As – high risk!
In brief, the diversification that the deal grants Pfizer will make its $70 billion annual revenue expectations by 2012 appear more realistic. It is also to be noted, that Wyeth’s share price & MCap at present is at levels that can be easily compared to the lowest in the past half-a-decade. This would therefore directly imply that purchase at this moment would make it cheaper for Pfizer.
Then come the challenges. One issue ahead is that Wyeth will lose its patent on two drugs, Effexor (anti-depressionary) and Protonix (for treating heartburn) in 2010 and 2011 respectively. Even Lugg states, “This acquisition however, doesn’t reduce the ‘overall’ exposure to patent expirations and the 2010-12 period will continue to be a challenge for Pfizer... It needs a couple of good new patents.” The vehicle that the company is using to finance the deal may also prove expensive as the above mentioned $22.5 billion debt, will be in the form of short-term borrowing that Pfizer will surely have to refinance. In the current downturn, this actually doesn’t sound easy as Brian Tempest, Chairman, Hale & Tempest Co. argues, “This funding is too surprising keeping the present financial environment in mind.”
Surely, Pfizer has done some great work with previous big-ticket acquisitions like Warner Lambert and Pharmacia, and this might just prove the third medallion! Call it ‘Pfyeth’ or what you please, but this was a necessary evil (as all acquisitions are!).
In brief, the diversification that the deal grants Pfizer will make its $70 billion annual revenue expectations by 2012 appear more realistic. It is also to be noted, that Wyeth’s share price & MCap at present is at levels that can be easily compared to the lowest in the past half-a-decade. This would therefore directly imply that purchase at this moment would make it cheaper for Pfizer.
Then come the challenges. One issue ahead is that Wyeth will lose its patent on two drugs, Effexor (anti-depressionary) and Protonix (for treating heartburn) in 2010 and 2011 respectively. Even Lugg states, “This acquisition however, doesn’t reduce the ‘overall’ exposure to patent expirations and the 2010-12 period will continue to be a challenge for Pfizer... It needs a couple of good new patents.” The vehicle that the company is using to finance the deal may also prove expensive as the above mentioned $22.5 billion debt, will be in the form of short-term borrowing that Pfizer will surely have to refinance. In the current downturn, this actually doesn’t sound easy as Brian Tempest, Chairman, Hale & Tempest Co. argues, “This funding is too surprising keeping the present financial environment in mind.”
Surely, Pfizer has done some great work with previous big-ticket acquisitions like Warner Lambert and Pharmacia, and this might just prove the third medallion! Call it ‘Pfyeth’ or what you please, but this was a necessary evil (as all acquisitions are!).
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