World's Biggest Drug Deal
American Home Products and drug giant Warner-Lambert Co. announced Thursday a $71 billion merger agreement to create the world's largest drug company.
The deal between the two New Jersey companies would be the biggest to date in the drug industry and among the biggest deals ever.
Pfizer Inc. made a surprise $82.4 billion offer for Warner-Lambert Thursday afternoon, just hours after their deal with American Home Products was announced.
American Home Products declined to comment.
Pfizer offered $96.40 per share for each share of Warner-Lambert. The $71 billion merger agreement with American Home Products valued Warner-Lambert $83.55 a share.
Pfizer officials said they had previously told Warner-Lambert officials of their interest in making a deal.
Pfizer and Warner-Lambert have co-marketed the blockbuster cholesterol lowering drug Lipitor since 1997. Pfizer said that agreement prohibited the two companies from merging. But the agreement was voided by Warner-Lambert's decision to merge with American Home.
The combined Pfizer-Warner Lambert would have revenues of $28 billion and a market capitalization of more than $200 billion.
American Home is behind the household products Advil, Robitussin and Chapstick and the top selling hormone replacement drug Premarin, the world's most prescribed medicine.
But it is struggling as a result of lawsuits and product safety questions and has been seeking a merger partner after two previous deals collapsed.
Warner-Lambert makes Certs mints, Schick razors and the blockbuster cholesterol drug Lipitor. It has been the nation's fastest-growing drug company for the past two years.
The new company will be called AmericanWarner Inc.
"They both need more depth in research and distribution and a stronger global presence," said Linda Miller, portfolio manager for the John Hancock Global Health Sciences Fund, which owns about 150,000 shares of each company.
The stocks of both companies rose Wednesday after both parties confirmed that they were in merger talks. Shares of other drug makers also rose as investors anticipated a new round of dealmaking.
The merger will be structured as a stock swap, with shareholders in each company controlling half of the shares in the new company. Each company will name 10 members of the new board of directors.
Combined, American Home and Warner-Lambert would have sales of $26 billion. Their prescription-drug business would surpass the current leader Swedish-Anglo concern AstraZeneca PLC, which makes Prilosec, a heartburn drug that had the highest sales of any drug on the market.
Including over-the-counter medicines and other health care products, a combined American Home and Warner-Lambert would rank third in worldwide sales behind No. 1 Merck & Co. and No. 2 Johnson & Johnson.
By joining forces, drug companies can spread the cost of developing new drugs, while increasing the sales force needed to market old and new products. Te companies expect a total cost savings of $1.2 billion over three years.
Both companies are under pressure from consumers and Congress to slow the rising prices of their medicines.
Last year, wholesale prices for 50 prescriptions commonly filled by the elderly rose by 6.6 percent even though the overall inflation rate that year was just 1.6 percent, according to the study released Wednesday by the consumer group Families USA.
American Home's operating profits have been sluggish this year as the company has faced a rash of safety and legal troubles with its drugs. Last month, the company had to yank its childhood diarrhea vaccine from the market after it was linked to severe bowel obstruction in infants.
Also last month, the company reached a $4.75 billion settlement with thousands of women who said they were injured by the diet drugs Redux and Pondimin.
Warner-Lambert -- driven in recent years by its blockbuster cholesterol drug Lipitor -- is positioning itself for the next decade so it isn't so dependent on a single success story, said Sergio Traversa, an analyst at Mehta Partners.
Both companies also have strong franchises in drugs for the central nervous system, Traversa said. Together, he said, they're likely to broaden their range of cancer and cardiovascular drugs as well.
American Home of Madison, N.J., makes the estrogen replacement drug Premarin, which is expected to have 1999 sales of $1.8 billion and will also be launching several new products in coming quarters.
American Home tried twice to find a partner last year, but negotiations fell apart with SmithKline Beecham PLC and later with Monsanto Co.
Warner-Lambert also has been looking for partners to expand its business. Earlier this year, the company paid $2.1 billion to acquire Agouron Pharmaceuticals, which makes drugs for cancer, viral diseases and eye diseases.
Among American Home's plethora of new drugs awaiting regulatory approval are the sleeping pill Sonata, the ulcer pill Protonix and a childhood vaccine to prevent pneumonia and ear infections.
Under terms of the deal, American Homes' top executive, John Stafford, 62, will be chairman of the combined firm for 18 months. Warner-Lambert's Lodewijk J.R. de Vink, 54, will be CEO immediately and will assume the chairman's position after Stafford steps down.
The two companies have similar cultures and their headquarters are just a few miles apart in New Jersey. American Home is in Madison and Warner-Lambert is in Morris Plains. The new company will be based in American Home's facility.