Drug giant Pfizer Inc.'s agreement to acquire rival Wyeth would give Wyeth directors a voice on Pfizer's board and includes hefty penalties aimed at preventing the deal from collapsing, according to a regulatory filing made Thursday.
The 86-page agreement states that Pfizer will add two current directors on Wyeth's board to its own board.
And it spells out what happens if either side tries to back out of what would be Pfizer's third large acquisition since 2000.
Pfizer would be on the hook for $4.5 billion, while Wyeth would have to pay a breakup fee of $1.5 billion to $2 billion, depending on the timing and circumstances under which its terminates the deal. The higher fee for Wyeth would apply after 30 days from when the agreement was reached on Jan. 25, or Feb. 24.
New York-based Pfizer announced Monday that it had an agreement to acquire Wyeth, of Madison, N.J. for just under $68 billion, although the value of the deal has since declined with Pfizer's share price, to about $64.8 billion.
The regulatory filing by Pfizer, called a Current Report, was submitted to the U.S. Securities and Exchange Commission late Thursday.
Among other things, it states that Wyeth cannot actively solicit a competing proposal from another potential acquirer.
Approval of Wyeth's shareholders is one of several conditions for the merger to be consummated, along with approval of federal regulators and Pfizer securing its planned financing of the deal.
The acquisition is fueled by Pfizer's need to address an expected revenue crash in 2011 when the world's top-selling drug, its cholesterol fighter Lipitor, loses patent protection. By buying Wyeth, Pfizer expects to mutate from a maker of blockbuster pills, including Lipitor, impotence pill Viagra and antidepressant Zoloft, to a one-stop shop for vaccines, biotech drugs, traditional pills, nonprescription products and veterinary medicines.
Besides that diversification, the deal offers Pfizer the chance to immediately boost revenue by about 50 percent, to about $71 billion a year, and at the same time slash costs furiously to improve its bottom line.
Pfizer is beginning to lay off roughly 8,200 of its employees and said that ultimately 15 percent of the combined companies's workforce of 129,500 people — nearly 20,000 workers — will lose their jobs.
Under the agreement, Pfizer would fund the purchase with about one-third each worth of its own cash, stock and newly issued debt. Wyeth shareholders would receive a combination of $33 in cash for each of their shares, plus 0.985 of a share of Pfizer stock. Given that the value of Pfizer stock has fallen from its close at $17.45 a share last Friday, to $15.12 Thursday, the total value of the deal is now down to about $64.8 billion.
In order to fund the $22.5 billion cash portion of the purchase, Pfizer had to slash its dividend from 32 cents to 16 cents, a move analysts say was a major reason investors sold off furiously Monday, driving the share price down from $17.45 to $15.65. The dividend had been a prime reason for hanging onto Pfizer's languishing stock, now worth about one-third of its $48 peak in 2000.
Pfizer will significantly increase its debt with the deal, borrowing a total of $22.5 billion from five investment banks that are then syndicating, or parceling out, parts of that debt to other banks, lenders and investors.
"When we close the transaction, we'll have about $50 billion of debt," including existing Pfizer and Wyeth debt, Chief Financial Officer Frank D'Amelio told institutional investors at a luncheon Tuesday were Pfizer executives talked up the deal.
To prevent the need to borrow even more, D'Amelio told the investors, Pfizer will be repatriating a large, but unspecified amount of its cash held overseas. That comes at the price of much higher tax rates, high enough that Pfizer estimates its 2009 tax rate will be 30 percent, up from 22 percent in 2008.