Summary: Pharmaceutical companies Pfizer and Warner-Lambert completed their merger on Monday. The new company now needs to deliver on its promise of 25% earnings-per-share growth and $1.6 billion in annual savings.
Wrapping up a nasty takeover battle that erupted last year, Pfizer (NYSE: PFE) and Warner-Lambert completed their merger on Monday, creating a pharmaceutical giant with an estimated $31 billion in annual revenues. Warner-Lambert shareholders received 2.75 shares of Pfizer for each Warner-Lambert share.
Management can now focus on combining the two entities and delivering on promises. The company has pledged to grow operating earnings per share by at least 25% per year between 1999 and 2002. This growth will be fueled by continued strong pharmaceutical sales growth, led by super-blockbuster cholesterol drug Lipitor. Pfizer also expects to achieve $1.6 billion in cost savings and synergies from the merger.
Achieving sales growth over the next couple of years will probably be the least of Pfizer's worries. Full ownership of rapidly growing Lipitor (a drug previously co-promoted by Pfizer and Warner-Lambert), co-promotion rights for the hit arthritis drug Celebrex, and solid growth from several portfolio drugs make solid revenue growth likely.
Achieving the $1.6 billion in savings will probably be a little more difficult. While it's fairly easy to sit in a corporate office and plan where savings can come from, delivering on that objective is a little more difficult. Generally speaking, corporations are a little overeager when they calculate these savings. This doesn't mean they won't be achieved, but the number should be watched. (It'll also be interesting to see how high merger-related costs rise. I haven't seen an estimate of these costs, but they will likely be pretty steep.)
The biggest challenge will be ensuring that the company effectively captures the theoretical synergy between the two companies. The company will be spending $4.7 billion on research and development (R&D) this year. It is imperative that this investment result in drugs that can fulfill the company's revenue growth needs as growth from Lipitor and Celebrex moderate down the road.
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Rule Maker Series: Talking With Pfizer (Part 1, Part 2, Part 3, Part 4)
