Pfizer and Wyeth overcame more than their fair share of challenges to bring a groundbreaking deal to fruition.
By Ken Tarbous
January 29, 2010
As it turns out, Pfizer’s $68 billion acquisition of Wyeth is the deal that almost wasn’t.
Wyeth was shy during the courtship. There was debate about the price of this mammoth transaction, and — most importantly — credit markets were chaotic when dealmakers were crafting the terms.
But when the hefty deal was unveiled in January of last year, it showed the world that Wall Street was still open for business. That earns the purchase the title of Health Care Deal of the Year.
Long before Jeffrey Kindler, the chief executive of Pfizer, met in June 2008 with his Wyeth counterpart, Bernard Poussot, each of the pharmaceutical giants had been looking at new strategies for achieving their goals.
“Pfizer went through a very thoughtful process to understand their strategic options. There was a very thoughtful front-end period, from which this transaction ultimately evolved,” says Ken Hitchner, global co-head of health care investment banking at Goldman Sachs.
Pfizer paid 66% of the price in cash and 34% in stock. Bankers say Wyeth’s top managers saw that the target’s various businesses would dovetail nicely with its own.
“Management’s bold vision not only redefined Pfizer from an operational standpoint by diversifying their presence in vaccines, biologicals, consumer health and nutrition, but also financially — from a tax standpoint, a dividend standpoint and with their shareholder base,” says Drew Burch, head of health care mergers and acquisitions at Barclays Capital.
With Goldman Sachs, Barclays, Bank of America Merrill Lynch, Citigroup and JPMorgan Chase as advisers, Pfizer diligently pursued Wyeth. However, the severe market dislocation and the Lehman Brothers bankruptcy roiled the credit markets, complicating efforts to complete the transaction.
“The thing that differentiates it is that this deal was negotiated while the financial world was falling apart,” says Paul J. Taubman, co-head of institutional securities at Morgan Stanley. “There were no clear metrics to use, since the world was changing so fast. To be able to achieve a full valuation and deal certainty and have the economics hold up so well a year after it was agreed, that’s what is so differentiating.”
Wyeth, with Morgan Stanley and Evercore Partners as advisers, was steadfast in its view that a deal would need to produce long-term value for its own shareholders.
“One of the central questions was how Pfizer would finance the purchase price. Even in good markets, a deal this size can be difficult to finance,” said Clinton Gartin, head of the health care banking at Morgan Stanley.
The behemoth deal required a $22.5 billion bridge loan and included a $4.5 billion reverse termination fee tied to Pfizer’s credit ratings. Both were salient points of the deal.
“The transaction was groundbreaking at almost every level. It was a critical strategic initiative and an important opportunity for Pfizer from an M&A and a strategic perspective. It was complex and had tremendous scale, and the financing was, in its own right, transformational by virtue of its size in the context of unprecedented market turmoil,” says Wylie Collins, a managing director in debt capital markets at Bank of America Merrill Lynch. “On all deals as complex and large as this, the M&A and financing are inextricably linked, so it is very important for all components of a transaction to work. This was even more important given the historic market environment under which the deal was consummated.”
