PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
Warner-Lambert Co. has raised the white flag. On Jan. 13 the drugmaker announced it was now "exploring strategic alternatives, including meeting with Pfizer." Pfizer Inc. launched a hostile bid for Warner on Nov. 4, after Warner had struck a deal to merge with American Home Products Corp.
At first, Warner aggressively fought off Pfizer's advances. But American Home's stock price has dropped since it struck the Warner deal. Fears have mounted that American Home's legal liability, stemming from its diet drugs, could grow, and the decline in its share price has made the Pfizer deal more appealing to Warner investors. And two large institutional investors, the California Public Employees' Retirement System (CALPERS) and the City of New York, recently wrote to Warner CEO Lodewijk J.R. de Vink arguing that the company needed to consider Pfizer's bid. "The Warner-Lambert board is starting to acknowledge reality," says Brown Brothers Harriman analyst Michael Krensavage.
Of course, there is still the chance a third bidder could emerge. Like Pfizer, many drugmakers would love to get their hands on Warner's blockbuster cholesterol-lowering drug Lipitor. "You can't rule out a white knight in this," Lehman Brothers analyst C. Anthony Butler said earlier in the week.
DO OR DIET.
Still, most analysts are betting that Pfizer will walk away victorious. As for American Home Products, independent analyst Hemant Shah figures the company will go looking for another merger partner. But this is the third attempt at a deal for American Home, which previously held talks with SmithKline Beecham and struck a merger agreement with Monsanto. Both efforts faltered, in part because of cultural and management issues. While analysts figure American Home Products CEO John R. Stafford will try to find another merger partner, they warn that continued uncertainty about the diet-drug litigation could make such efforts problematic.
One big question mark is how the issue of accounting will be resolved. Under the Warner agreement with American Home, if either party walks away from the deal, there is a provision that makes it difficult for a third bidder to use favorable accounting treatment. Pfizer has made its offer conditional on the removal of that provision. Analysts are betting the three companies may be able to strike a deal to remove the restriction.
Even if they don't, analysts expect Pfizer to proceed with the deal, even though the accounting treatment they would use could make the deal a drag on their earnings initially.
Amy Barrett in Philadelphia EDITED BY DOUGLAS HARBRECHT
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.
To subscribe online to BusinessWeek magazine, please click here.
Copyright 2000 , by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
