Wyeth Shareholders Reluctant to Pfizer Sale
Legal Topics | 2009/01/28 17:22
Wyeth shareholders say the company is selling itself too cheaply to Pfizer - for $68 billion, or $33 for each Wyeth share, plus 0.985 of a Pfizer share. The federal class action claims that in the deal, announced Monday, Pfizer is taking advantage of a weak stock market to buy Wyeth on the cheap.
    Wyeth shareholders claim the deal is "grossly inadequate," though it offers about a 15% premium over Wyeth's market price. They estimate that the deal works out to about $50.19 per Wyeth share, based on the $33 cash and Pfizer's closing price of $17.19 on Friday, Jan. 23.
    Wyeth reported $22.4 billion income in 2007, up from $20.6 billion in 2006, and the company continued to do well since then, reporting $11.7 billion in revenue for the first half of 2008, according to the complaint.
    Plaintiffs claim: "On September 25, 2008, Credit Suisse's Equity Research department published a research note noting that Wyeth shares represented an opportunity for the Value Investor, as its shares were trading at just above their 4-year low at $37.76. According to the note: 'Our sum of the Parts Analysis implies a price of $52, roughly 38% upside to Wyeth's $37.76 closing price today. In fact, assuming the biologics business alone (led by Enbrel and Prevnar) is worth $44, the value of just the biologics business is 117% of the current share price.'"
    Shareholders cite a Sunday story in The New York Times: "On January 25, 2009, The New York Times reported that 'Pfizer appears to be taking advantage of the bad market for credit to buy Wyeth at a lower price than it might fetch if competing bids emerged, which analysts do not expect.' The article, citing Barbara Ryan, an analyst at Deutsche Bank stated: 'They have a unique opportunity now because not everybody can get that capital. They're probably one of the few companies in the world that can get that capital. These are going to be among the best companies in the U.S. to extend credit to.'
"On January 26, 2008, Forbes reported that the Proposed Transaction 'will give Pfizer a much larger presence in areas where it has been viewed as weaker than the competition, namely biotech drugs and vaccines. Wyeth, which makes the top-selling vaccine for children, Prevnar, would help fill this void. Wyeth also co-markets Amgen's Enbrel biotech drug for rheumatoid arthritis. That is exactly what Pfizer needs as it looks to fill the void that will be left by Lipitor when it loses patent protection in 2010.'"
The complaint adds: "The terms of the Proposed Transaction also present Wyeth shareholders with considerable risk. The onerous terms insisted upon by Pfizer's lenders reflect how disastrous the current market is for sellers and calls into question the Individual Defendants' judgment in deciding to sell the Company at this time. The lenders can abandon their financing commitment if Pfizer's credit rating drops below certain thresholds. ...
"By agreeing to the Proposed Transaction on these terms and placing the fate of all its shareholders in the unreliable hands of the rating agencies the Board has created a huge risk for Wyeth shareholders that cannot possibly be compensated for by a larger than usual reverse termination fee.
"In their pursuit of the Proposed Transaction the Defendants have breached their duty of loyalty to Wyeth's stockholders by using their control of Wyeth to deprive the Company's public shareholders of maximum value to which they are entitled. The
Defendants have also breached the duties of loyalty, good faith and due care by not taking adequate measures to ensure that the interests of Wyeth's public shareholders are properly considered in rejecting the Proposed Acquisition.
"The Individual Defendants are in a position of control and power over Wyeth's public stockholders, and have access to internal financial information about Wyeth to which plaintiff and the Class members are not privy. Defendants are using their positions of power and control to undervalue Wyeth, to the detriment of Wyeth's shareholders."
Plaintiffs want the deal rescinded and enjoined until they get a better offer. Their lead counsel is Joseph DePalma with Lite DePalma Greenberg.


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