Warner-Lambert Accepts Sweetened Bid From Pfizer

Warner-Lambert Co. on Wednesday accepted a sweetened bid from Pfizer Inc., and the companies hope to wrap up an $85-billion merger agreement soon to form the world’s No. 2 drug maker, people familiar with the negotiations said.

Pfizer boosted its bid to 2.75 of its shares for each Warner-Lambert share from the 2.5 it offered last November, the people said. The agreement to accept the higher bid, valued at $99 a share based on Wednesday’s closing price, is tentative and the Warner-Lambert board has yet to vote on it, they said.

The companies also still need to reach a settlement with American Home Products Corp., which has a $59-billion merger agreement with Warner-Lambert and stands to collect a $1.8-billion breakup fee should Warner-Lambert back out. American Home is insisting on rights in its agreement with Warner-Lambert to $200 million in additional compensation, one person said.

An agreement would create the second-largest drug maker, behind the result of the planned union of British rivals Glaxo Wellcome and SmithKline Beecham.

The companies declined to comment.

“You have to deal, and 2.75 shares seems very reasonable. Everyone gets something,” said John Schroer, portfolio manager at Invesco Capital Management, which holds shares in Warner-Lambert, Pfizer and American Home. “I think this is good news for Pfizer shareholders. Some people were worried they would exchange 3 shares” for each Warner-Lambert share.

Morris Plains, N.J.-based Warner-Lambert for two months spurned Pfizer’s hostile bid in favor of a friendly merger with American Home, which is based in nearby Madison, N.J.

Warner-Lambert Chairman Lodewijk de Vink, under pressure from shareholders to consider Pfizer’s higher bid, agreed to negotiate last month, but he also approached household goods giant Procter & Gamble Co. about making a competing bid. P&G; ended those talks last week, feeding expectations that Warner-Lambert and Pfizer would reach an accord before going to court on Feb. 14.

Warner-Lambert and Pfizer are to make arguments in a Delaware court on whether Pfizer’s bid violated a pact to market Warner-Lambert’s best-selling anti-cholesterol drug Lipitor. A merger agreement now would let the companies call off the court battle.

“Pfizer is trying to get closure on this before the Delaware court case,” said Chris Delpi, an analyst with Glenmede Trust, which holds shares in all three companies involved.

Before Pfizer and Warner-Lambert can conclude an agreement, they must negotiate with American Home over the break-up fee, as well over an option for a 14.9% stake in Warner-Lambert. Pfizer will not be able to use a favorable accounting treatment for the merger unless American Home gives up the options. That would mean Pfizer would have to report tens of billions of dollars in noncash charges against earnings over 20 years, which could hurt its shares since investors typically value pharmaceutical company stocks on multiples of their ratios of price to earnings.

On the New York Stock Exchange, American Home shares rose $1.13 to close at $46.13, Warner-Lambert closed off 38 cents at $95.50 and Pfizer fell $1 to $36.