Companies Pfizer and Warner-Lambert Essay
The year 2000 saw the two fastest growing pharmaceutical companies Pfizer and Warner-Lambert, enter into a merger where Pfizer acquired Warner-Lambert Pharmaceutical Company. Pfizer is a global pharmaceutical company that is based in the US and has activities in the pharmaceuticals, consumer healthcare and animal health industries. Warner-Lambert is also a company started in the United States that is engaged in the global manufacture and sale of products in pet care, confectioneries, consumer healthcare and pharmaceuticals (European Economic Commission 2).
The $93. 4 billion merger was going to create a company that is the world leader in four major therapeutic areas which include cardiovascular, lipid-lowering, central nervous systems and infectious diseases (Roller, 2000). The acquisition of Warner-Lambert allowed Pfizer to gain product lines ranging from Parke-Davis pharmaceuticals, Listerine brand of mouthwash and the Wilkinson Sword wet- shave products (Pfizer, 2000).
This merger was as a result of a strategic relationship that goes back to 1996 when both companies agreed to co-market worldwide the cholesterol lowering drug known as Lupitor that was first developed by Warner-Lambert (DePamphilis 125). This combination of two world class organizations would create a fast-growing pharmaceutical company that is well known in the world and position it for global
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Warner launched his own drug store in Philadelphia. He was the first person to invent a tablet-coating process to encase harsh-tasting medicines in sugar shells. This innovation earned him recognition with the Smithsonian Institution. He gave up his retail store in 1886 and launched fully into the drug manufacturing business using the name William R. Warner and Co. while in the Midwest, Jordan Wheat Lambert launched Lambert Pharmacal Company in St. Louis. Lambert’s main product was Listerine antiseptic which was only marketed to the medical professionals.
Lambert soon realized that Listerine had a huge consumer potential which led him to begin mass marketing the product through an advertising campaign (Pfizer, 2000). William R. Warner and Co. was later bought in 1908 by a St. Louis based company known as Pfeiffer Chemical which expanded the business through more acquisitions. The paths of Warner Company and Lambert firm merged in 1955 and created Warner-Lambert Pharmaceutical Company which grew by acquisitions of companies such as American Chicle Company, a New York based company that dealt with the production of gums and mints.
In 1965 it purchased and expanded a small company in the United Kingdom that dealt with cough tablets known as Halls Mentholyptus (Pfizer, 2000). 1970 saw the company acquiring the Schick wet shave product line from the Eversharp Company and the Parke-Davis company’s line of drugs and medications such as Dilantin, Salk polio vaccine and bacterial vaccines (Pfizer, 2000). A greater expansion of the company took place in 1996 when Warner-Lambert entered a co-marketing agreement with Pfizer on the Lipitor product.
In 1999 Warner-Lambert acquired Agouron which was mainly involved with protein based drug designs and a marketer of protease inhibitors known as Vuracept. Pfizer Company was founded in New York by Charles Pfizer and Charles Erhart in 1849. The company known as the Chas. Pfizer and Company Inc. was a manufacturer of chemicals including tartar, borax and refined camphor. Santonin was their first product which was used as a drug to treat intestinal worms. 1862 saw the company produce its first product line of tartaric acid and cream of tartar which were vital in the food and chemical industries.
The demand for painkillers and preservatives during the Civil War saw Pfizer expand its tartaric production line and other vital drugs such as morphine, iodine and chloroform to help meet the needs of the Union Army (Pfizer, 2000). With the start of a new century, Pfizer’s main product was Citric acid because it had many industrial applications such as providing a flavoring to food, drinks and medicine. The Second World War saw an urgency and need to develop medication that was able to fight off infections.
One such drug was Penicillin which was discovered by Alexander Flemming in 1928. In 1942, Pfizer used its expertise in the fermentation process to produce for the first time penicillin in large volumes. This made it to become the world’s largest producer of penicillin. Pfizer began its global expansion by moving to Canada in 1953. It opened its headquarters in Manhattan in 1959 where it is still based to this day (Pfizer, 2000). Background and Details of the Merger In late 1998, Pfizer became aware of numerous rumors surrounding the merger of Warner-Lambert and an unknown company.
The CEO of Pfizer, William Steere, sent a letter to the CEO of Warner-Lambert, Lodeijk de Vink in 1999 inquiring on whether there was a potential for Pfizer to broaden its strategic relationship with the company to include a merger. Vink responded expressing concern that the letter violated the standstill agreement by indicating interest in a merger. Pfizer had entered into a standstill agreement with Warner that prohibited Pfizer from making a merger proposal unless invited to do so by Warner.
The speculation about a merger between Warner-Lambert and American Home Products came to the fore in November 1999 when an article appeared in the Wall Street Journal announcing the merger between the two companies that was valued at $58. 3 billion. The announcement of the merger released Pfizer from the standstill agreement (DePamphilis 126). Mr. Steere’s reaction to the merger was a letter outlining the reasons why a merger between Pfizer and Warner would be beneficial for both companies and their shareholders. He stated that combining both companies would result in a global powerhouse in the pharmaceutical industry.
Also Pfizer’s products complemented those of Warner including Warner’s over the counter drug presence and a new line of medication with Pfizer’s global marketing and strong sales infrastructure. Steere also argued that the merger would enable the two companies to generate annual cost savings of at least $1. 2 billion annually within a year of completing the merger (DePamphilis 126). The savings would be achieved by consolidating more than 100 manufacturing factories and combining the two headquarters and administrative offices in over 30 countries.
In addition to the letter from the CEO, Pfizer announced that it had started legal action against Warner, its Directors and American Home Products in a court in Delaware. The action sought to impose the $ 2 billion termination fee and stock options granted by Warner to American Home Products allowing them to acquire 14. 9% of Warner’s common stock valued at $83. 81 per share as part of the agreement. The lawsuit stated that the termination fee and stock options were not in the best interests of Warner’s shareholders and they would prevent potential takeover attempts.
Warner rejected Pfizer’s proposal in a press release on November 5, 1999 and reaffirmed its commitment to merge with American Home Products (DePamphilis 126). Pressure for Warner to terminate the merger with American Home intensified with some of it coming from its major shareholders, California Public Employees Retirement System and the New York City Retirement Fund. After three months of struggle, Warner-Lambert agreed on February 8 2000 to be acquired by Pfizer for $92. 5 million making it the world’s largest pharmaceutical company.
Even though Pfizer was able to merge with Warner, it still had to pay American Home Products a break-up fee for terminating its merger with Warner (DePamphilis 127). Conclusion: The merger allowed Pfizer’s shareholders to own 61% of the new company on a diluted basis while the Warner-Lambert shareholders would own 39% of the shares. The chairman and executive of the newly formed company was Pfizer’s CEO, William Steere. Warner’s chairman made a personal decision to not be included in the management team (Koo, 2000).
Apart from Lupitor which Pfizer co-promoted with Warner in 1996, the new company would have products worth $1 billion in the market. These products were Zoloft, Zithromax, Diflucan, Celebrex, Norvasc and Viagra (Koller, 2000). The merger created some side effects for Pfizer that would last for several years. A study conducted in 2000 by the Boston-based medical research firm, Center watch, found that after the merger, drug companies spent less on research and development over a period of three years.
It used the example of Pfizer’s Arthritis drug trial which was cancelled during the merger transition (Herper, 2000). A spokesman for Pfizer said that even though the expected increase in revenue would result in expanding research and development activities, the merger would not affect the operations of the Pfizer’s Animal Health department which was purchased from SmithKline Beecham in 1995 (American Veterinary Medical Association, 2000). Works cited Pfizer. 2000: Pfizer joins forces with Warner Lambert. 29 April 2010
http://www. pfizer. com/about/history/pfizer_warner_lambert. jsp Pfizer. Pfizer Inc: Exploring Our History. 29 April 2010 http://www. pfizer. com/about/history/1849_1899. jsp DePamphilis, Donald M. Mergers, acquisitions, and other restructuring activities. London: Elsevier Academic Press. 2005. Print. pp. 125-127 Pfizer. Pfizer’s History: Humble beginnings. 29 April 2010 http://www. pfizer. ca/english/pfizer%20canada/pfizers%20history/default. asp? s=1 Koo, Carolyn. Pfizer, Warner-Lambert Ink Merger Deal.
July 2, 2000. 30 April 2010 http://www. crystalra. com/media/The%20Street. com%20- %20Pfizer%20Warner%20Lambert%20-%2002-07-00. pdf European Economic Commission. Regulation No. 4064/89 Merger Procedure Article 6(1) (b) Non opposition, Case No. COMP/M. 1878-Pfizer/Warner-Lambert. 22 May 2000. p. 2 Roller, Kim. Pfizer, Warner-Lambert merger forms pharmaceutical powerhouse. 6 March 2000, 30 April 2010. http://findarticles. com/p/articles/mi_m3374/is_3_22/ai_60122861/ Herper, Matthew.
Pfizer’s Warner-Lambert Acquisition Has Side Effects. June 21,2000. 30 April 2010 http://www. forbes. com/2000/06/21/mu5. html Pfizer. com. Pfizer Inc: Evolving to meet the needs of a changing society. 30 April 2010 http://www. pfizer. com/about/history/history. jsp American Veterinary Medical Association (AVMA) . Pfizer acquires Warner Lambert in latest of Megamergers, Journal of the American Veterinary Medical Association. March 15 2000. 30 April 2010. http://www. avma. org/onlnews/javma/mar00/s031500i. asp