Pfizer-Wyeth (India) Merger Possibility

On Jan 26, 2009, Pfizer and Wyeth announced that they have entered into a definitive merger agreement under which Pfizer will acquire Wyeth in a cash-and-stock transaction. Now as this merger gets effective, the universal subsidiaries will also merge- as Pfizer has done in the past- especially in the Indian stock market. The combined (parent) company will create one of the most diversified companies in the global health care industry, with product offerings in numerous growing therapeutic areas, a strong product pipeline, and leading scientific and manufacturing capabilities.

Now, what does this mean for the shareholders in India? In India, both Pfizer USA and Wyeth USA have partnerships with the local shareholders in the respective companies. Before Wyeth, Pfizer had taken over Pharmacia, Warner Lambert and Parke Davis. All three had similar positions in the Indian stock exchanges. And the fate of all three was becoming a part of Pfizer India, via a merger. The same can, and most probably will happen with Wyeth India. The Pfizer promoters had increased their shareholding in Pfizer India (via an open offer priced at Rs. 830 per share). When the open offer came, there was speculation that the parent company may ultimately want to delist the Indian arm from the bourses a la Cadburys'. But in our opinion, this actually has the potential to be a signal to the merger that is possible. A merger could dilute the shareholding of the promoters, and therefore, they increased their holding beforehand.

Wyeth India has a topline of close to Rs. 400 cr and a market cap of close to Rs. 1450 cr. Pfizer India has a topline of Rs. 700 cr (profit Rs. 300 cr as of FY0809) and a market cap of around Rs. 2500 cr. Pfizer currently trades in the range of 775-810 (closed at Rs 838 on Sep 3, 2009). Wyeth trades at Rs. 630. So, the news of the merger would be the next triggers for these two stocks. Pfizer is one of the world's largest pharmaceutical companies, and the merger with Wyeth would create a pharma behemoth with large R&D capabilities and a long product pipeline.

Now if this merger happens, the Pfizer share in India may trade at the levels of around Rs. 1000 with considerable support. This is mostly due to the better value associated with the stock due to the merger of Wyeth acting as a premium, and the dilution of capital acting as a discount.

StocksCenter verdict: Buy Pfizer on dips