P&G Shares Tumble on Takeover Talk

Shares of Procter & Gamble (PG) dropped almost 9% in Friday trading on fears that the consumer-products behemoth might bid for pharmaceutical firms Warner-Lambert (WLA) or American Home Products (AHP) or both.

The stock ended down 9 7/8, or 8.7%, to 102 11/16 in heavy trading on the New York Stock Exchange and was largely responsible for the 99.59-point decline in the Dow Jones Industrial Average. At one point during the day, P&G fell below 100.

Speculation that P&G might try to buy Warner-Lambert or American Home or both has been swirling for the past week, complicating what already was a messy takeover intrigue.

After agreeing to a merger in early November with American Home, Warner-Lambert has been locked in a battle with Pfizer (PFE), which made its own hostile bid for the company. P&G is seen as a possible savior of Warner-Lambert, which reluctantly decided on Jan. 13 to negotiate with Pfizer.

The P&G board was scheduled to meet Friday by telephone, according to The Wall Street Journal, so that P&G management could brief the board on talks held with the two pharmaceutical firms.

A purchase of one or both companies by P&G -- which makes Crest toothpaste, Tide laundry detergent and Pampers diapers -- would dramatically increase its pharmaceutical business revenue, which now accounts for only 2% of total sales. As a comparison, Warner-Lambert's pharmaceutical business represents 65% of total sales and American Home's 73%.

Nevertheless, the sharp drop in the stock Friday reflected an investor fear of uncertainty. There was also concern that if there were a deal, the sheer expense of it would depress P&G's earnings.

"There are too many variables," said analyst William Steele of Banc of America Securities. "We don't know if P&G will merge with Warner-Lambert or American Home or both. We don't know how much they would pay for one company or for two. We don't know the potential cost synergies, and we don't know the potential spinoffs."

He rates P&G a buy, and his firm has done no recent underwriting for the company.

"Investors tend to react very negatively to uncertainty," Steele said. "They tend to sell now and wait until things becomes more visible."

Pfizer shares were down 1 5/16, or 3.6%, at 35 1/16 in post-market Friday trading, while American Home shares were up 1 7/8, or 4.1%, at 48. Warner-Lambert shares were down 1 5/8, or 1.7%, at 92 1/8.

In its bid, American Home offered 1.49 shares for every Warner-Lambert share. Pfizer offered 2.5 shares for every Warner-Lambert share. Valued at Friday post-market trading prices, the American Home bid now stands at $61.4 billion and Pfizer's at $75.3 billion.

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