Pfizer-Wyeth: Credit Markets Have Doubts About the Deal; Patent Cliff Problem NOT Solved

Some housekeeping notes on the Pfizer-Wyeth merger:

• The patent cliff remains unfilled, the WSJ reports: … between 2010 and 2015, the combined company’s revenues will drop by $11 billion to $62 billion. Health-care analysis firm Datamonitor estimates that products accounting for 38.5% of Pfizer’s 2007 sales will face generic competition by 2013. With the addition of Wyeth, the outlook improves only slightly: 34.7% of the combined company’s products will face patent expirations by then.
• $4 billion in cuts to come from combined company: That’s to get 19,500 layoffs.
• Banks have a get-out clause: WSJ says lenders can walk away from the deal if Pfizer’s credit ratings fall too far. Such guarantees are unusual, “new reality,” etc.
• Reuters on the debt picture: Fitch cut Pfizer’s debt rating; S&P and Moody’s likely to follow.
• Reuters reports that the credit default swap market thinks the deal might not get done: insurance prices for Pfizer’s debt only give the deal a 50-50 chance of going through. What do they know that we don’t? It doesn’t say.
• NYT: Wyeth also has some doubt about Pfizer’s ability to get the deal done: “A staggering breakup fee, $4.5 billion” if the deal is not completed.
• Your tax dollars at work: the money Pfizer loaned to get the deal came from banks that had taken advantage of the TARP bailout.
• Although we knew this already, it’s here in B&W in the Times: Wyeth’s management will “depart,” presumably with tasty severance packages. (Oh! What a lovely recession!)
• At least the companies will start paying some tax: their money has to be repatriated to the US to do the deal.
• No antitrust problems are anticipated: lawyers for both companies say they expect the parties to be “reasonable.”
• Some notes from the Q4 earnings releases: Wyeth’s gross profit fell 8 percent and Pfizer’s rose 8 percent from the previous quarter, suggesting that Pfizer found some pricing leverage in the raw materials market that Wyeth did not.
• Pfizer’s R&D rose to 19 percent of revenues; Wyeth’s rose to 17 percent: both companies’ R&D expenses are now the highest portion of revenues for at least a year.
• Sales productivity fell at both companies from the prior quarter: Pfizer got $3.37 for its sales dollar, Wyeth got $3.25.
• In the quarter prior to the deal, those ratios all favored Wyeth: suggesting that the “fat” that could be cut from a combined company lay at Pfizer. But Q4 is much more messy, with Pfizer making some gains and Wyeth taking its foot off the gas pedal. The trend over several quarters seems to be going nowhere. Theory: Perhaps both sides wanted this deal because they felt they had reached the end of their ability to cut and still keep revenues up?
• See BNET’s previous coverage of Pfizer:
• How Pfizer Hid a $2.3 Bill. Bextra Settlement in Plain Sight
• Reaction to Pfizer-Wyeth: Employees Despair, Plot Rebellion; Analysts Shrug; PFE Stock Down 10%
• Pfizer’s Wyeth Buy Eclipses $2.3 Bill. Bextra Troubles; 19,000 Layoffs to Come
• The Pfizer-Wyeth Deal Worst-Case Scenario