Today's report is the fourth and final installment in a series of columns I began back in April, in which I've been relaying information from discussions that Matt and I had with three representatives from Pfizer (NYSE: PFE) -- James Gardner, VP Investor Relations; Ron Aldridge, Director of Investor Relations; and Rick Hoddeson, VP of Operations Planning & Analysis. In this final segment of our conversation, we asked some questions related to Pfizer's pending merger with Warner-Lambert (NYSE: WLA). Our questions are in italics, followed by a synopsis of Pfizer's response and some Foolish commentary.
Can you provide examples of some of the things that will give rise to the projected $1.6 billion of post-merger savings?
Current expectations are for savings of $200 million in 2000, $800 million in 2001, and $600 million in 2002. However, the company believes that, if anything, these savings will come earlier than expected. In addition, Pfizer has 40 manufacturing sites; Warner-Lambert has 60; and, the two entities have headquarter-type functions at 30 or more locations around the world. There's no need for 100 plants and so many regional headquarters. The areas that are least likely to see expenditure cuts will be R&D and the sales force.
At Pfizer's upcoming summer analyst meeting, more details about the potential cost savings and how they will be achieved will be provided, including the exact sources of savings as well as the "gravy" from qualitative synergies. Specifics can't really be provided until the deal has closed, which is currently expected to happen in June.
What thoughts do you have about the impact of the withdrawal of Rezulin from the market?
This should have no material impact on the merger. It was a relatively low-profit product and the cessation of sales should not affect Warner-Lambert's results. Sales of the product had already been trending down due to labeling changes and the presence of other products on the market. The Rezulin sales force can easily be shifted to other products.
Was the decision to make an offer for Warner-Lambert merely precipitated by the rumors of the deal with American Home Products (NYSE: AHP) [the merger document that was issued to Pfizer shareholders certainly left me with that impression], or was it contemplated for some time?
Warner-Lambert was an unforeseen opportunity that suddenly arose and Pfizer felt the need to react quickly. Pfizer moved to acquire Warner-Lambert as soon as it was free of the standstill agreement that the Lipitor co-marketing agreement had placed between the two companies. Pfizer had not foreseen that Warner-Lambert's leadership would "put itself into play." This was an opportunity that didn't become "real" until October 1999, and Pfizer moved quickly.
Pfizer believes that this combination makes for a very potent company for the future. It expects 25% annual earnings growth through 2002 for the combined company. Pfizer had been interested in "maximizing its participation" in Lipitor from the beginning. In order to do this, the standstill agreement had to no longer apply (this happened once American Home and Warner-Lambert agreed to merge).
Thus concludes our chat with Pfizer's management. The question remains, of course, what does all this mean and what should an investor's perception of Pfizer be? In my opinion, Pfizer remains a company that may have a rather compelling future. That said, the company's financial management has significant room for improvement. With such improvements, I think the company would become more valuable over the long-term. As I've written in the past, Warner-Lambert has a history of managing its working capital better than Pfizer. Let's hope that some of that will rub off on Pfizer once the acquisition closes.
In the meantime, it is encouraging to note that, as detailed in this discussion board post, Pfizer's Rule Maker score for the first quarter was the company's best in some time. Even so, the company still has a ways to go until it qualifies as a top-tier Rule Maker. By the way, you can now access our up-to-date list of community-ranked Rule Makers via the "RM Master List" link on the upper-right side of stacked links on this page. E-mail readers -- and there are several hundred thousand of you now! -- will need to first dial into the Rule Maker home page.
If you wish to discuss this report further, please feel free to ask your questions on the Rule Maker Strategy discussion board. Have a great night!
Phil Weiss (TMFGrape on the boards)