Most commentators will have a view on the reasons for M&A within the pharmaceutical sector but a meander through the most prolific of serial acquirers in the large capitalization area, Pfizer, together with a look at the performance figures does make you wonder if it is all worth it. The chart above shows the share price of Pfizer since Jan 1, 1996. It hasn’t kept up with the S&P 500 over that time although it is somewhere in the middle of the two performance outliers of the large caps, GSK and JNJ. Adding back dividends and share buybacks would perhaps boost total shareholder return versus the other companies but that is not the point at issue.
Pfizer began the millennium with a merger with Warner Lambert, followed by Pharmacia in 2002 and Wyeth in 2009. The headline statistics from these deals make interesting reading.
· Aggregate deal values (value of stock and cash paid) was around $220bn for these three businesses compared with a market cap today at $212bn.
· The aggregate employee numbers were around 150,000 in addition to Pfizer’s employee number of 46,000 in 2000, compared with 78300 in 2014. (Clearly some employees have gone with businesses sold or spun off but not 122,000!)
· The aggregate cost savings alone, expected 3 years post deal, was $8.1bn compared with net income in 2014 of $9.135bn and $3.4bn in 1999.
· The aggregate sales of the three acquisitions were ca $50bn, compared with Pfizer’s sales of $16.2bn in 1999 and $49.6bn in 2014.
The question remains as to whether these deals were about strategic gain or survival. Pfizer has clearly survived but with over 100,000 fewer employees, big cuts in aggregate R&D and a share price that remains similar to that in 2000 is it too simplistic to ask which stakeholders have actually benefited from this? Even the shareholders of the target companies, who received a premium for their shares, are entitled to wonder what might have happened had they held on. Lipitor (Warner lambert), Enbrel (Wyeth) and Prevnar (Wyeth) didn’t do too badly.
The author was a Pharmaceutical Analyst at Lehman Brothers for 23 years as well as being involved with the PharmaFutures projects www.pharmafutures.org but is now writing independently. Stewart Adkins is a Director of Pharmaforensic Limited www.pharmaforensic.co.uk
Stewart Adkins was a Pharmaceutical Analyst at Lehman Brothers for 23 years and was involved with the Pharmafutures projects.