It's striking -- bordering on shocking -- how investors have reacted differently to the megamergers by Pfizer
|
Company |
Increase (decrease) in share price from day before announcement |
Increase (decrease) in S&P500 since merger announcement |
|---|---|---|
|
Pfizer |
(18.3%) |
(6.5%) |
|
Merck |
17% |
13.9% |
Source: Yahoo! Finance.
Granted, it's only been seven trading days for Merck (including the day of the announcement) and we did have a giant bull run last week, but Merck outpaced the S&P 500. Over the same amount of time immediately following its announcement, Pfizer trailed the broad market by more than 13 points. It sure looks like Pfizer's investors aren't all that excited about what Wyeth
There are some pipeline and patent expiration differences between Schering and Wyeth, but I think the main culprit in Pfizer's lackluster performance since the announcement is the dividend cut. Pfizer had to make a cut to conserve cash for the acquisition and, so far at least, Merck hasn't. Investors in Pfizer had been sitting on a nice fat 7.3% yield, getting paid to wait for what the company would do to overcome the impending fall in revenue post-Lipitor. With the dividend cut in half, investors had to discount the stock. And the yield still isn't back up to what it was, sitting at just 4.5% going forward. That's better than the yields at Johnson & Johnson
As I wrote after the Merck deal was announced, I like that acquisition better than Pfizer's, but that doesn't make it the best move for Merck. Instead, stocking its pipeline with a bunch of developmental-stage drugmakers might have been a better use of the $41 billion Merck is using to buy Schering. Investors may be happy with the increase in share price they’ve seen over the last week and a half, but I'm not convinced this merger's the best long-term move for Merck.
