Warner-Lambert, Pfizer Agree to Merge

After three bruising months of courtship, fast-growing drug giants Pfizer Inc. and Warner-Lambert Co. agreed to marry Monday in a $92.5-billion deal.

The combined company, to be known as Pfizer, would be the world’s No. 2 drug maker, but it would be expected to vault to No. 1 within two years should the merger succeed as analysts expect.

For consumers, the deal would be expected to have little short-term impact. The new company would control less than 7% of the world market for prescription drugs. But the companies contend that by combining they would be able to more effectively develop new medicines and help hold down business expenses.

The daunting challenge before both companies’ executives is to put aside their legal and other differences and unite their research, sales and manufacturing efforts.

Pfizer’s first step with Warner-Lambert would be to identify $1.6 billion in cost cuts to be taken by 2002. A big chunk of that is expected to come from layoffs as the companies move to combine administrative and manufacturing forces.

Pfizer Chief Executive William C. Steere Jr. would be the leader of a business with annual sales of $28 billion. He said integration of the companies is expected to go smoothly. Warner-Lambert Chairman and Chief Executive Lodewijk J.R. de Vink would step aside once the deal is completed, which is expected to happen this summer.

De Vink had agreed in November to a takeover by American Home Products, but Pfizer launched its own hostile offer shortly afterward and Steere accused Warner-Lambert of failing to give Pfizer a chance to bid. Warner-Lambert responded by seeking to terminate Pfizer’s rights to co-market and share profits from the blockbuster cholesterol-lowering drug Lipitor.

“That’s all behind us,” Steere said Monday.

Added de Vink, “In any negotiation of this magnitude, you are going to have tensions, and the most important thing is you look forward.”

Warner-Lambert agreed Sunday to pay American Home $1.8 billion, for the largest breakup fee in history. American Home said it will use the money and cash from selling its struggling agriculture business to pay the legal bills on health claims of consumers who used its now-discontinued diet drugs and make itself more attractive for another suitor.

For the current deal, Pfizer would exchange 2.75 of its shares for each share of Warner-Lambert, or about $101.06 a Warner-Lambert share at Monday’s closing price. The transaction is valued at $92.5 billion in stock, based on Friday’s closing prices, plus $1.4 billion in assumed debt.

On the New York Stock Exchange, Warner-Lambert rose $2.75 to $97.31, Pfizer rose $1.25 to $37, and AHP gained $2.94 to close at $48.44.