Pfizer Steals American Home's Thunder With $82.4 Billion Bid for Warner

(Updated at 5:45 p.m.)

Just hours after American Home Products (AHP Quote) and Warner-Lambert (WLA Quote) agreed to merge in a $72 billion stock swap, pharmaceuticals giant Pfizer (PFE Quote) trumped the deal, making an unsolicited $82.4 billion all-stock bid for Warner-Lambert.

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Pfizer's offering $96.40 a share in stock for Warner-Lambert in a deal that Pfizer said offers a 30% premium to last month's average closing price of Warner-Lambert stock. The merger agreement with American Home Products valued Warner-Lambert at $83.55 a share.

Hours after announcing its takeover bid, Pfizer said it filed suit in the Delaware Court of Chancery to negate a $2 billion break-up fee and lock-up option that Warner-Lambert granted to American Home as part of the merger agreement.

Pfizer Thursday also released a letter it sent to Warner-Lambert's CEO, saying in part that Pfizer's bid offers a "compelling combination and excellent strategic fit, creating superior value for all our shareholders." Pfizer said in the letter that it had "repeatedly tried over the past few weeks to discuss with you the merits of a combination between Pfizer and Warner-Lambert."

"It's an incredibly determined move," said Tom Burnett, the president of institutional researcher Merger Insight. "Companies don't go public with announcements like this that are basically a hostile takeover bid unless they are very serious about it."

A representative for American Home declined to comment. Representatives for Pfizer and Warner-Lambert, which have had a marketing partnership for the cholesterol-lowering drug Lipitor since 1997, weren't immediately available for comment.

Independent analyst Hemant Shah said Pfizer's offer may be for more money, which would likely be enticing to Warner-Lambert's stockholders, but it wouldn't be as attractive to Warner-Lambert's management. That's because Pfizer's management has been extremely successful and that could leave Warner-Lambert's executives out in the cold, Shah said.

"This kind of explains why Warner-Lambert rushed into the agreement," he said. "Typically, something like this takes a lot of time."

The question still to be determined: Will American Home get into a bidding war with Pfizer?

American Home could go slightly higher in its bid to keep the agreement intact, Burnett said. But Shah said it might be a fruitless effort on American Home's part.

"Pfizer is not a company that gives up easily," Shah said.

Pfizer announced its bid just minutes after American Home chairman John R. Stafford and Warner-Lambert chairman Lodewijk J.R. de Vink held a jovial press conference in New York. The pair spoke for nearly an hour, discussing details about the deal that would turn their combination -- to be called AmericanWarner -- into the world's top pharmaceutical company. Stafford would become the new chairman of the company, while de Vink would be the chief executive.

But since Pfizer's announcement, shares for all the involved companies have slipped from their highs as the dreamy atmosphere gave way to something more hard edged. For the day, Warner-Lambert's stock was up 1 3/16 to 84, American Home's was down 2 1/4 to 53 3/4 and Pfizer's was down 9/16 to 38. [Warner-Lambert closed up 6 5/16 to 90 1/8, American Home finished down 1 to 55 while Pfizer closed down 1 7/16 to 37 1/8.]

Burnett said American Home is being advised by Chase and Morgan Stanley, while Warner-Lambert is being advised by Bear Stearns. Information on which firms were being retained by Pfizer wasn't immediately available.

If American Home united with Warner-Lambert, the new company would have pro forma sales of $26 billion and a $3 billion research-and-development budget. In comparison, a company combining Pfizer and Warner-Lambert would have sales of $28 billion and a $4 billion research-and-development budget, Pfizer said. In either case, the research-and-development budgets -- which are crucial as major pharmaceuticals search for growth earnings while also taking on complicated, big-name diseases such as cancer or the AIDS virus -- would be the highest in the industry .

Either of the newly formed companies that may materialize would save about $1.2 billion annually.

Losing out to Pfizer would be one more black mark on American Home's merger record. Twice in the past two years American Home has been linked to proposed mergers, with SmithKline Beecham (SBH Quote) and Monsanto (MTC Quote), neither of which came to fruition

If Warner-Lambert chooses Pfizer, it wouldn't have to worry about American Home's $3.75 billion settlement related to problems over a diet drug, which still needs court approval. And analysts have pointed to that settlement as a possible stumbling block to the merger. Although neither American Home nor Warner-Lambert would discuss the contractual specifics of the merger agreement, Stafford said at Thursday's press conference that both companies are "well protected."

During the press conference, Stafford and de Vink seemed to mesh well as they smoothly answered questions, frequently deferring to the other graciously. That had been a concern because Stafford, who would be the new company's chairman for 18 months before retiring, is known to have a strong will, and some thought that attitude could break up the agreement. When asked who would run AmericanWarner, Stafford immediately said, "Lodewijk,'' while de Vink quickly defended Stafford when a reporter asked if Stafford was going to be a figurehead, saying, "We are in this together."