Stock Analyst Notes
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Several media sources have reported on a possible merger between Pfizer PFE and Wyeth WYE. The companies have not confirmed the talks, and we are not changing our fair value estimates on the basis of this speculation. However, we believe a merger would make sense. From Pfizer's standpoint, the merger would dilute the loss of cholesterol drug Lipitor in 2011 and bring in several important biologic products. Adding Wyeth's approximately $14 billion in cash and smaller dividend payout ratio should reduce investors' concern about the sustainability of Pfizer's dividend. On the flip side, the relative health of Wyeth's business would probably result in a hefty premium to Wyeth's current price. If Pfizer reaches too far for the company, the benefit of many of the positive merger synergies would be in jeopardy.
We believe the premium that might be demanded by Wyeth could represent the biggest hurdle for the merger. Negotiations could trail on throughout the year, as neither company needs to complete the deal immediately. However, with the Lipitor patent expiration approaching in 2011, we believe Pfizer would like to put its $25 billion-plus of cash to work well before 2011. Also, given the very challenging capital markets, we believe Pfizer's limited access to major financing may also delay a merger. The relative cheapness of Pfizer's equity in the event of a stock deal may also prove to be destructive to the value of the merger.
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