American drug firms Pfizer Inc and Warner-Lambert have agreed to merge to create the world's second largest pharmaceutical company. The transaction is expected to be complete by mid-2000. The merger is expected to result in several competitive advantages for the merged entity. See competitive strengths of the new company

The three-month bitter battle between the two ended after Pfizer offered an exchange of 2.75 shares of Pfizer common stock for each outstanding share of Warner-Lambert. The deal, based on Pfizer's 4 February closing price of $35.75, is valued at $90 billion, or $98.31 per Warner-Lambert share. This represents a 34 per cent premium over the average closing prices of Warner-Lambert during October 1999.

The new company, to be named Pfizer, will have William Steere as chairman and chief executive. There is no place in it for Lodewijk de Wink, chairman of Warner-Lambert.

The combined company will have a market capitalisation in excess of $230 billion and annual revenues of approximately $28 billion, including $21 billion in prescription pharmaceutical sales.

Warner-Lambert and American Home Products announced their intention to merge in October 1999. The plan was scuttled by Pfizer, which made a counter-offer to acquire Warner-Lambert. American Home Products will now receive a 'break-up fee' of $1.8 billion.

Huge cost savings
The merger will result in cost savings of an estimated $1.6 billion from 2002. The combined company expects to save $200 million by year-end 2000, $1 billion by year-end 2001 and $1.6 billion by the end of 2002. The cost saving is projected to accelerate annual net income growth from 20-25 per cent.

The new company will comprise of seven billion-dollar products – Norvasc, Lipitor, Soloft, Zithromax, Diflucan, Celebrex and Viagra – and the broadest range of products in therapeutic areas such as cardiovasculars, anti-cholesterol and diabetes.

Pfizer will be the fastest growing pharmaceutical company, with a research budget of $4.7 billion in 2000, nearly twice the R&D spending of its nearest American rival, Merck & Company.

The R&D operations of the combined company, headed by Pfizer vice-chairman Dr John F Niblack, will have a worldwide scientific staff of over 1,2000. The research pipeline includes 138 compounds in development in areas that include the central nervous system, oncology, cardiovascular diseases and infectious diseases.

Post merger, Pfizer shareholders will own approximately 61 per cent of the new company on a fully diluted basis, and Warner-Lambert shareholders will own 39 per cent.