Pfizer to buy Wyeth for $68 billion

By Jessica Hall and Lewis Krauskopf

PHILADELPHIA/NEW YORK (Reuters) - Pfizer will halve its dividend and raise $22 billion in debt to buy rival Wyeth for $68 billion in an acquisition aimed at softening the blow of losing its biggest product to generic competition.

But Pfizer shares slumped 10 percent and the cost of insuring its debt rose to an all-time high on concern about the additional debt and likely credit-rating downgrades.

Pfizer has long touted a hefty dividend to keep investors happy while it develops new drugs. But to do the deal, Pfizer slashed its dividend to 16 cents per share, effective with its second-quarter payout.

The dividend had led the industry, although the company maintains it still remains competitive with other drugmakers.

"People who owned it for the dividend got slapped in the head with a two-by-four today," said Mike Krensavage, principal with Krensavage Asset Management.

The blockbuster purchase planned by the world's largest drugmaker would reshape the pharmaceutical industry, while thawing a merger climate frozen by the global credit crisis.

Pfizer, which also forecast disappointing 2009 profit, said it would cut 15 percent of the combined company's workforce of about 130,000 employees and close some manufacturing sites -- adding to the job cuts sweeping through corporate America.

The New York-based company agreed to pay $50.19 -- $33 in cash and 0.985 share of its stock -- for each Wyeth share. That represents a 29 percent premium over Wyeth's closing share price last Thursday, before news of the talks began to leak.

Wyeth shares dipped 0.8 percent to close at $43.39 on Monday -- well below the offer price. The shares of Pfizer, which secured $22.5 billion in funding from a consortium of banks to help pay for the deal, fell 10.3 percent to $15.65.

"Given that there is a sizable amount of debt financing that has to occur, you would expect more risk to be built in," said David Moskowitz, an analyst with Caris & Co.

Indeed, the megadeal comes amid a merger drought, as tight credit markets make borrowing costly and difficult. Analysts said the fact that Pfizer had secured a large amount of financing was a positive signal. ID:nN26539838

"Deals of this quality and this magnitude will rekindle enthusiasm and hope about equity markets," said Andre Bakhos, president of Princeton Financial Group. "In the midst of a global recession, here is Pfizer, hopefully spending their dollars wisely."

COPING WITH LIPITOR LOSS

The acquisition -- the third-largest in the drug industry since 1998 -- would help Pfizer cope with a major gap in revenue in 2011, when its blockbuster Lipitor cholesterol treatment will begin to face U.S. generic competition. The company now says its earnings for 2012 should perhaps be about 20 percent above what Wall Street expected.

"Investors have been rightfully concerned about when Lipitor goes off patent," said Pfizer CEO Jeff Kindler. "Today's announcement definitively addresses that." ID:nN26388736