Diet-Drug Suits Settled, but AHP Merger Still in Trouble
American Home Products Corp. moved quickly to save its planned merger with Warner-Lambert Co. by settling hundreds of diet-drug cases in Mississippi, but some analysts said Wednesday that the transaction is still in trouble.
American Home settled the lawsuits for up to $500 million, people familiar with the matter said, after a jury on Tuesday awarded $150 million in damages to five dieters who said they suffered heart-valve damage from taking the company’s drugs. The late-night settlement threw out the jury’s award and ended the jurors’ deliberations on punitive damages.
“The company did a good job of quickly putting out a fire,” said Michael Krensavage, an analyst with Brown Bros. Harriman, referring to the Mississippi cases, “but the litigation is still an issue.”
Limiting American Home’s diet-drug liability is crucial to its merger agreement with Warner-Lambert, which also has a competing bid from Pfizer Inc. Since Pfizer topped American Home’s offer by $10.5 billion on Nov. 4, the spread between the offers has widened to $18 billion, suggesting investors doubt American Home will be able to complete the merger.
AHP shares pared earlier gains and fell 56 cents to close at $40 on the New York Stock Exchange. Warner-Lambert shares rose $1.13 to close at $25.94, and Pfizer rose $1.13 to close at $33.75, also on the NYSE.
The Mississippi case is separate from a national settlement that would pay $3.75 billion to former users of the so-called fen-phen diet-drug combination. The national settlement, not yet approved in court, may not be as attractive to fen-phen claimants after the Mississippi settlement. Former fen-phen users may be more willing to bring their cases to trial in hopes of winning millions rather than accepting much smaller payments under the national settlement.
Louis Hoynes, AHP’s general counsel, said Wednesday the Mississippi case would be settled for “substantially less” than $500 million, but refused to disclose terms.
Warner-Lambert declined comment. American Home officials said Warner-Lambert remains committed to the merger.
A Delaware judge is scheduled to rule Jan. 10 on whether AHP and Warner-Lambert’s merger agreement includes takeover defenses that unfairly thwart Pfizer’s bid. If those measures are knocked out, it could clear the way for Pfizer’s offer.
