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Pfizer to buy Pharmacia for $60 billion

Pfizer Inc has agreed to buy smaller rival Pharmacia Corp for $60 billion in stock, published reports said on Monday, and analysts say it could trigger a fresh round of consolidation in the global drugs industry.

US-Swedish Pharmacia declined comment but said it would release a statement later.

"We are going to distribute a press release later on Monday. Until the press release, we don't have any comments," spokeswoman Katarina Lokke told Reuters in Stockholm.

Pfizer did not immediately return calls seeking comment.

The marriage of Pfizer and Pharmacia would create a new pharmaceutical behemoth with a global market share of about 10 per cent, nearly half as big again as its nearest rival, GlaxoSmithKline Plc of Britain.

"It will be a very serious competitive threat to others," said Martin Hall, head of pharmaceuticals research at HSBC Securities in London.

"The question now is whether companies like Glaxo, Merck and Bristol-Myers Squibb are forced to do something themselves because of the threat."

The transaction is expected to be announced later on Monday, said the New York Times' and Wall Street Journal's Web sites, citing people familiar with the matter.

The enlarged company would boast annual sales of more than $48 billion and bring together several top-selling drugs, including Pfizer's Viagra and Lipitor, the popular cholesterol-lowering drug, along with Pharmacia's top-selling arthritis drugs, Celebrex and Bextra.

It would also bolster Pfizer's already strong position as the top drugmaker in the United States, while vaulting it to top spots in Europe, Japan and Latin America.

38 per cent premium

Terms of the transaction call for New York-based Pfizer to exchange 1.4 of its shares for each Pharmacia shares, the papers said. That would value the Peapack, NJ-based Pharmacia at $45.08 per share, a 38 per cent premium to the company's closing price Friday of $32.59 on the New York Stock Exchange.

Pfizer shareholders would own 77 per cent of the combined company, the papers said, and its chairman and chief executive, Henry McKinnell, will retain the same titles after the merger. Pharmacia Chairman and CEO Fred Hassan will become vice-chairman of the company's board.

Shares in Pharmacia surged more than 30 per cent and Pfizer fell nearly nine per cent in Frankfurt on Monday morning following the merger reports.

Analysts said the hefty premium Pfizer was ready to pay reflected the value it was likely to extract from Celebrex, the top-selling arthritis drug which Pfizer and Pharmacia have collaborated in marketing since 1998.

The Celebrex factor and the significant cost savings that Pfizer has mapped out make a counterbid unlikely, according to Kevin Scotcher, analyst with SG Cowen in London.

According to reports, Pfizer expects cost savings of $1.4 billion in 2003, rising to $2.5 billion by 2005.

Industry under pressure

The deal comes at a time of mounting pressure on the global pharmaceuticals industry, which is struggling with unprecedented competition from cut-price generic medicines and a drought of new products.

That has seen the sector's value slip relative to the broader share market, but Scotcher believes the Pfizer deal may signal that valuations have fallen far enough.

"It's positive for the sector. It shows there is significant value in the sector that another pharma company is willing to pay for," he said.

Analysts said the drug portfolios of Pfizer and Pharmacia appeared to mesh well, with Pfizer gaining an important position in the expanding cancer drug market.

"Pfizer sells some of Pharmacia's products and the drugs portfolio would improve. Those who know these companies say that there would be industrial advantages in a merger," commented a Swedish fund manager with a holding in Pharmacia.

The deal marks the largest acquisition proposal in what has been an otherwise dismal year for mergers and acquisitions.

Global merger volume was down almost 50 per cent through the first six months of 2002, said research firm Thomson Financial and, until the Pfizer deal, the year's biggest deal so far between publicly quoted firms was National Grid Group Plc's $9.4-billion acquisition of Lattice Group Plc.

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