REFLECTING On a MEGA-MERGER.

• Author: Heffes, Ellen M.

On Nov. 4, 1999, pharmaceutical industry giant Pfizer, Inc. made an unsolicited bid to buy Warner-Lambert Co. (which had earlier that same day announced a merger with American Home Products Corp.). This triggered a series of events that over the next eight months resulted in the biggest transaction in the history of the industry -- creating a company whose scale is unknown in most industries. The $100 billion-plus deal had to be communicated and its merits "sold" to the investment community, regulators and more than 90,000 employees in over 100 locations worldwide.

Pfizer executive vice president and chief financial officer David L. Shedlarz played the biggest role of his 25-year career in this real-life corporate drama. With June 2001 marking one year from the close of the deal, Shedlarz, an FEI member, reminisces about his part in the deal with Phil Livingston, FEI's CEO and president, and Ellen M. Heffes, Fes managing editor.

What was Pfizer thinking? What key strategic drivers made acquiring Warner-Lambert so important?

Shedlarz: Before the merger, Pfizer was among the top pharmaceutical companies in the world, with total revenues in the prior year slightly in excess of $16 billion. We were also one of the fastest-growing companies in terms of revenue and income performance; in 1999 we had earnings per share growth of 30 percent (excluding the impact of the 3Q99 charge relating to Trovan inventories and certain 1998 significant charges and discontinued operations), second to Warner-Lambert, with 35 percent growth in EPS. That in itself points to some of the clear advantages for combining the two companies -- at least over the short term.

Other strategic drivers: Pfizer was very dedicated and committed to its investment in research and development -- 1999 R&D investment was approximately $2.8 billion -- and with its preeminent marketing and sales organization, the company showed very strong top-line and bottom-line performance.

In certain circles that could raise the question, "Why merge with anybody?" The response is multifaceted. It really points back to one significant factor: This was a unique strategic opportunity for Pfizer, and this [merger] had a very powerful strategic and financial rationale.

Here were the two fastest-growing major companies within our industry; organizations with similar cultures, each with its own strong commitment to the pharmaceutical business; a great deal of success, on both the marketing and research fronts; common values in terms of respect for people and a strong community focus; and also having a fair amount of experience with each other, since we were co-promoting one of the largest pharmaceutical products in the history of the industry [cholesterol-lowering drug Lipitor].

Will you describe Pfizer's very successful strategic alliances? Then, in the case of Warner-Lambert, was Lipitor the "magnet?"

Shedlarz: One of Pfizer's strategic imperatives is to be the partner of choice with a number of outside alliances. That involves opportunities to take very promising candidates through the final development stages and then co-promote them. We have had very successful alliances with Pharmacia involving Celebrex and the Eiasi Company involving Aricept. We have hundreds of outstanding alliances on the research front, which we leverage quite strongly across every major functional area of the company, particularly in marketing and research. In addition, we now have numerous outstanding alliances on the research front. Pfizer's strengths in development and commercialization of product lines -- well-recognized in the industry -- has led to some very strong and successful collaborations.

The cooperation in commercializing Lipitor was a clear example of the...