Pfizer-Wyeth deal fails to create spark

NEW YORK (Reuters) - Days after PFIZER (PFE.NY)said it would buy Wyeth for $68 billion, Pfizer shares fell to nearly a 12-year low and some shareholders are questioning the wisdom of the planned union.

Pfizer on Monday said it would pay $50.19 -- $33 in cash and 0.985 share of its stock -- for each Wyeth share.

But Pfizer's stock has fallen 10 percent since news of the merger talks leaked out early on Friday -- including a 2.4 percent decline on Wednesday -- which would now allow $48.21 for Wyeth shares.

"People seem underwhelmed by the deal, maybe thinking Pfizer made a safe move with Wyeth rather than trying to shoot the lights out with a more aggressive company better able to produce blockbuster drugs," said Peter Jankovskis, co-chief investment officer of OakBrook Investments.

Some Pfizer shareholders may be bailing because the deal will force the drugmaker to halve its dividend, whose rich 8 percent yield has eased the pain as company profit and shares have steadily fallen in recent years.

Wyeth's Prevnar childhood vaccine and Enbrel arthritis drug -- both big blockbusters -- will likely help prevent Pfizer earnings from crashing when its $12 billion-a-year Lipitor cholesterol drug faces generic competition in late 2011.

Wyeth reported Prevnar sales of $2.7 billion and Enbrel sales of $3.8 billion for 2008.

Jankovskis, whose firm in Lisle, Illinois, holds about 1 million shares of Pfizer and 250,000 shares of Wyeth, noted Pfizer expects flat earnings through 2012 and there is no certainty profit will grow significantly soon after that.

"Investors will need fairly extreme patience," he said. "Maybe the best thing is not to go through with the Wyeth deal. Then Pfizer would be able to maintain their dividend and perhaps look for a better opportunity that would excite investors more."

Wyeth shares on Wednesday closed at $43.85, a bit higher than their closing price on Monday, after the deal was announced. Although they have risen 13 percent since January 22, the day before news of the merger talks leaked out, shares remain far lower than the 29 percent premium offered by Pfizer.

"There could be some pushback here from those that think Wyeth may be worth more than Pfizer is paying for it, especially when you consider Wyeth's stock was close to $50 back in July," said Russell Croft, portfolio manager of Baltimore-based asset manager Croft-Leominster.

But Croft, whose company holds more shares of Pfizer than Wyeth, said he's inclined to support the deal which is slated to close in the second half of 2009.

"At first glance it looks like a pretty good combination because, with Lipitor running out, Wyeth would help fill Pfizer's drug pipeline," he said. "And Pfizer could cut out a lot of costs, including back-office expenses and probably sales positions," after the deal closes.

Jon Fisher, portfolio manager of Fifth Third Asset Management in Minneapolis, panned the deal, although he predicted ultimately it will not be deemed as harmful to Pfizer as its costly acquisitions of rival drugmakers Warner-Lambert and Pharmacia Corp over the past decade.

"It's neutral at best; I don't think they'll generate a great return on the capital they're investing in this deal," he said, noting that Pfizer -- the world's largest drugmaker -- will get substantially bigger.

"I don't see what's going to re-invigorate the company. They're just making themselves very large, and it's very difficult to grow a huge business like that," Fisher said.

"What they'll add to the company will help prevent a big earnings drop, but it doesn't enhance Pfizer's growth profile," Fisher said. He said Prevnar and Enbrel will not be big enough to greatly help Pfizer, whose current array of products generate $48 billion in annual sales.

Moreover, the deal has dealt a setback for Wyeth's vaccine business, by prompting Wyeth to end its own negotiations to acquire Dutch vaccine maker Crucell , Fisher said.

Despite longstanding investor pain and lingering worries about Pfizer, some of its stockholders think continued patience will yet pay off, including David Katz of asset manager Matrix Asset Advisors in New York.

"The Wyeth deal is not a panacea, but moves Pfizer in a better direction by alleviating the Lipitor problem," said Katz, who is co-chief investment officer of Matrix. "It flattens the earnings to get back to growth."

Pfizer shares now trade at 6.5 times annual earnings per share, less than half their traditional price-to-earnings ratio, Katz said.

"But shares could eventually double if the P/E goes back to its historic average," which he said could happen once earnings growth returns to a high-single-digit percentage range.

"Pfizer will not be a robust 20 percent-a-year grower like a biotech," he said, but can nevertheless amply reward investors.

Mike Burnick, director of research with Weiss Capital Management in Palm Beach Gardens, Florida, also plans to remain patient. (Pfizer) "has been kind of dead money for the last five years. That kind of apathy about a stock tends to create a good value."

"We're still bullish on it now," said Burnick, who predicted Wyeth's drugs and expertise will benefit Pfizer's drug development. "We have no intention at this time of parting ways with the company."

(Additional reporting by Lewis Krauskopf; editing by Carol Bishopric)