Warner-Lambert and American Home Products to Merge, Forming World's Largest Pharm/Consumer Health Company
On paper at least, the merger neatly combines the two companies' consumer products, while addressing short- and long-term concerns for their prescription pharmaceutical businesses.
On the consumer side, Warner-Lambert's claim to fame is Certs mints and Schick razors. Sales of its blockbuster cholesterol-lowering agent, Lipitor, have made Warner-Lambert the fastest-growing U.S. drug company for the past two years. Despite this success, Warner-Lambert's drug pipeline is relatively bare. It's next potential blockbuster is gabelin, a second-generation drug to treat epilepsy and central nervous system disorders. Since the company's current epilepsy drug, Neurontin (gabapentin, approved in 1993) is expected to lose its patent exclusivity soon, gabelin's success would have taken on critical proportions. Warner-Lambert has two additional patents that could extend some measure of exclusivity into the next decade, but those are being litigated with two potential generic competitors.
American Home markets and manufactures OTC and personal care products under the Advil, Robitussin, and Chapstick brands, as well as hormone replacement drug Premarin, currently the world's most-prescribed drug. Reeling from recent litigation and a multibillion-dollar settlement over its diet products, American Home has been looking for a merger for some time, having previously failed to hook up with SmithKline Beecham and Monsanto. In contrast with Warner-Lambert, American Home's pipeline is practically bursting with new drugs and others awaiting FDA approval. These include Sonata insomnia, the ulcer pill Protonix, and a childhood pneumonia vaccine that apparently may also prevent ear infections.
AmericanWarner will therefore enjoy a robust, potentially lucrative product pipeline within such areas as insomnia, cholesterol reduction, organ transplant rejection, hemophilia, cancer, and invasive pneumococcal disease. In biotechnology, AmericanWarner Inc. will benefit from Warner-Lambert's ownership of Agouron and AHP's ownership of Genetics Institute and its majority stake in Immunex.
AmericanWarner Inc. will also have some of the world's best known consumer health brands including Advil, Listerine, Centrum, Halls, Robitussin, Benadryl, Sudafed, Zantac 75, Rolaids, Dimetapp, Chapstik, Lubriderm, Neosporin, and Preparation H. On a pro forma basis, AmericanWarner Inc.'s $26 billion of estimated 1999 sales will be approximately 66% from pharmaceuticals, 17% from consumer health care products, and 17% from other non-health care businesses including agricultural and confectionery products.
Under the terms of the merger-of-equals transaction, which has been unanimously approved by both boards of directors, Warner-Lambert's shareholders will receive 1.4919 shares of AmericanWarner Inc. for each Warner-Lambert share. American Home Products shareholders will receive AmericanWarner shares on a one-for-one basis. Both companies' shareholders will own approximately 50% of the combined company. The transaction will be accounted for as a pooling of interests and will be tax free to the shareholders of both companies.
Management expects AmericanWarner Inc. to achieve higher earnings growth than either company could expect to achieve on its own. AmericanWarner Inc. plans to achieve annual cost savings of approximately $1.2 billion to be fully phased in by the third year after closing.
AmericanWarner's board of directors will consist of 20 members, 10 each from Warner-Lambert and AHP. John R. Stafford, AHP's chairman, president, and CEO, will serve as chairman for 18 months after closing and chair the board's Executive Committee. Lodewijk J.R. de Vink, Warner-Lambert's chairman, president, and CEO, will serve as CEO of AmericanWarner Inc. and will become chairman upon Stafford's retirement as Chairman. Stafford will continue as chairman of the Executive Committee and remain on the board until age 65.
"This merger is an ideal strategic combination that will create exceptional long-term growth and value for the shareholders, customers and employees of both companies," Stafford said. "With one strong leadership team, we will move quickly to integrate these two complementary companies to achieve cost synergies and take full advantage of our extraordinary growth potential on a global scale.'"
Said de Vink, "Our combined resources will enable us to accelerate the discovery, development, and availability of many innovative and medically important new therapies. We are committed to leveraging our knowledge and our investments in biotechnology to improve the lives of patients. We also have a tremendous opportunity to significantly improve shareholder value."
The transaction is expected to close in the second quarter of year 2000, subject to antitrust clearance, approval by both companies' shareholders, and other customary conditions. The companies have granted each other customary cross options and have agreed to reciprocal fees upon termination of the agreement of up to $2 billion in certain circumstances.
The corporate headquarters for the new company will be located in Madison, NJ. Warner-Lambert's Morris Plains site will be home to the consumer health and nutrition business. Pharmaceutical operations will be based in Radnor, PA. All other divisions are expected to remain in their current locations.
Anthony H. Wild, Warner-Lambert president, Pharmaceutical Sector, will head the pharmaceutical business, and Robert A. Essner, AHP's executive VP, will lead all other businesses including consumer health care and nutrition, confectionery, agricultural, and animal health. Ernest J. Larini, currently Warner-Lambert's executive VP and CFO, will be CFO. Louis L. Hoynes, Jr. currently AHP's Senior VP and general counsel, will be general counsel.
For more information: Tom Cavanagh, American Home Products Investor Relations. Tel: 973-660-5706. George Shields, Warner-Lambert Investor Relations. Tel: 973-540-6916.
By Angelo DePalma